Bank Or Credit Unionwhich Is Better
Compare the benefits and find out whether using a credit union or a bank is better for your finances.
Are you confused about the difference between a bank and a credit union? They have a lot in common, but they also have some major differences. Today well cover their benefits so you know which type of institution is better for your personal finances..
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What To Consider When Choosing Between A Traditional Bank Credit Union Or Online Bank
Before choosing one financial institution over the other, ask yourself the following questions:
- How many branches and ATMs do they have? If in-person service matters to you, look at banks and credit unions that have local branches. If youre just looking for a way to deposit and take out cash, many online banks offer their customers access to a broad network of ATMS.
- What interest rates do they offer? Check out the interest rates on whatever accounts youre considering from different traditional banks, online banks, and credit unions. You are most likely to find the best rates with credit unions and online banks.
- What fees do they charge, and how much are they? Do your research on the fees a traditional bank, credit union, or online bank might charge you. Most credit unions and online banks are able to offer low- to no-fee accounts due to the fact that credit unions are owned by members rather than shareholders, and online banks dont have the operational expenses that come with maintaining physical locations.
- What features and services matter the most to you? Make note of what you want from a financial institution when it comes to services and simplicity. Consider things like mobile banking apps and automatic savings accounts when making your decision.
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Banks Vs Credit Unions: The Differences That Matter To You
Banks and credit unions are two common types of financial service providers. Both insure the deposits of customers whether through the FDIC or NCUA. While banks are businesses owned by shareholders, credit unions are not for profit institutions owned by the customers themselves. There can also be a fairly substantial size difference between the two institutions. These key differences have numerous implications for consumers.
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The Benefits Of A Credit Union
Because credit unions are distinctly different from banks in structure and organization, they also offer distinct benefits. As non-profit institutions, credit unions can focus squarely on delivering the most value to their customers. There are no owners, executives, or stockholders who are focused on padding their paychecks in whatever way possible. Credit unions do have their boards of directors, but those boards are made up of members who have volunteered for the responsibility. They are driven by the same wants and needs as all other members, which means that credit unions tend to do a terrific job at acting in the best interests of their members. Moreover, each member of any credit union has voting rights and can play an active role in the decision-making that drives that institution. Members vote to elect the volunteer board of directors and have a voice on other issues as well.
All these factors help pave the way for the significant benefits of a credit union. The biggest of those benefits is that any profits from the credit union are funneled back toward the members. Since there is no need to pay executives or send dividend checks to stockholders, members benefit in the form of higher interest rates on savings accounts, more equitable rates on loans, lower fees for credit cards or other accounts, free educational programs to help members learn smart financial habits, and more.
Should You Choose A Credit Union Or Bank
While there are many differences between credit unions and banks, picking the right financial institution comes down to figuring out what services and products you need and whether youre willing to pay fees. It may also mean pondering some abstract elements as well, like how much you want to feel valued by and engaged in your community.
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Bank Or Credit Union: Which Is Right For You
Banks and credit unions are really two sides of the same coin. They both offer similar services and products, and they both have benefits and drawbacks.
Banks may work best for someone who needs unlimited access, wants the latest technology or is seeking the best interest rate. Credit Unions may be the right choice for someone whose priorities are personal service, community relationship, or lower fees.
I have been a loyal credit union member for over 3 years, and I would not want my money anywhere else. In fact, no hidden fees, minimum account fees, and exceptional service is why I trust my local credit union not just with my personal accounts, but also my business accounts. I love the freedom of having multiple savings accounts, and being able to organize my assets in a way that keeps me motivated on my financial journey.
Choosing between the two will involve some trade-offs. Identify your specific needs before you make a decision. After all, is said and done, having different types of accounts at both a bank and a credit union account may be your smartest financial option.
Cons Of Credit Unions
- You must become a member. Since most credit unions comprise members who share something in common, such as a workplace or industry, you must meet eligibility requirements to become a member and partake of the products and services. Membership requirements are often fairly lenient, though, and joining may be as simple as depositing $5 into a savings account.
- You may find better rates elsewhere. You might be able to find a higher APY on a share certificate or savings account or a lower rate on an auto or other type of loan at online-only banks, which do not have the expense of maintaining branches.
- Limited accessibility. Credit unions tend to have fewer branches than traditional banks. A credit union may not be close to where you live or work, which could be a problem unless your credit union is part of a shared branch network and/or a large ATM network like Allpoint or MoneyPass.
- Not all credit unions are alike. Smaller credit unions may not offer as many loan and deposit products as big credit unions and banks. They also might not offer the latest technology, such as online banking, mobile banking and peer-to-peer payment platforms, such as Zelle.
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The Advantages Of Banks Over Credit Unions
With their larger size and abundance of locations, banks generally offer unparalleled convenience and a one stop shop for a wider range of diverse service offerings. However, because banks also have a much wider customer base, individual customers will generally have a less personal relationship with the financial service provider and may also receive less competitive rates and deals on their products.
Interest Rates At Banks And Credit Unions
First, lets talk about interest rates. Banks and credit unions earn revenue by loaning out deposits to customers who want to borrow money. In return for the privilege of using your money for these loans, both banks and credit unions typically pay interest, depending on the type of account you have. As long as a bank or credit union collects more interest from borrowers than it pays out to depositors, and covers its operating expenses, it can stay in business.
On average, credit unions pay more interest than banks, according to bankrate.com. This is because a credit unions profit belongs to its members, not to management or shareholders. Most earnings are put back into a credit union and ultimately returned to members in the form of benefits, like higher interest rates on deposits, lower interest rates on loans, and fewer fees.
So offering better interest rates is where a credit union can really shine. However, remember that rates vary, so you should always compare credit unions and banks across the country for the type of account or loan that you want.
One of the best places to locate and research credit unions is at ncua.gov, the National Credit Union Administration website. You can compare hundreds of financial institutions at sites like:
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Benefits Of Credit Unions
Banks and credit unions are different in lots of ways, including the benefits they offer. First, lets tackle the credit union. Here are a few perks of membership with them:
- Personalized customer service. Want to feel like an insignificant blip on the radar of time and space? Join a big corporate bank. To them, youre an account number that makes them money. Credit unions can offer a personal touch because they actually care about you. What a concept.
- More financial literacy resources. A lot of credit unions will offer financial education, counseling or coaching. They want you to win with money. Butand this is a big butcredit unions may encourage you to get loans for your car and other big expenses. Just say no. Nada. Nope. Not gonna do it. Ever. Get the point? Debt-free is the only way to win with money.
- Free checking accounts. Credit unions cant give you money for nothing, but the checking account might be free. And some credit unions dont even require a minimum balance , which is a good thing when youre counting every penny.
- Lower fees and higher savings interest rates. We touched on this earlier, but fees and interest rates are two giant differences between banks and credit unions. That extra half a percent in interest might not seem like a big deal now, but as that builds up over decades, it could be the difference between a trip to Paris, Texas, and a trip to Paris, France.
Cons Of Getting A Credit Union Mortgage
The benefits of credit unions arent as apparent when searching for mortgage rates, because credit unions dont have the marketing scale banks have, which is why they generally dont appear in searches for low rates, says Rich Arzaga, founder and CEO of Cornerstone Wealth Management in San Ramon, California.
The cons of getting a mortgage through a credit union include:
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How Do I Choose A Credit Union
To choose a credit union, youll want to ask yourself a few questions:
- Do I meet the credit union membership requirements?
- Does it have branches or ATMs near me?
- Does it have the account types or other products I need?
- What kinds of fees does it charge?
Basically, you should ask yourself the same things you would when choosing a bank for your business.
Should You Deposit Money With A Bank Or Credit Union
Ultimately, most consumers will be better off by first understanding what they want out of their financial institution. If both a credit union and a bank offer the same product, compare rates and fees between the two given your financial situation. Make your decision based off that.
Keep in mind that though credit unions are supposedly customer focused, some may operate more similarly to large banks, but with the caveat that they receive tax break. On the other hand, while large banks may have shareholders, this does not necessarily mean customers will suffer. Also, some smaller community and regional banks may very well function much like credit unions, from a customer point-of-view. As a customer, it is important to evaluate your own personal needs and not to let the experiences of other people color your impressions of various financial institutions.
Some customers may opt to open accounts at both credit unions and banks alike. All in all, both types of financial institutions will be a safe place for customers to store their money and the decision of credit union versus bank all boils down to individual preference and need.
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One Outstanding Service That Differs Is Customer Service
Now, we all realize that customer service can vary significantly from day to day, branch to branch, and person to person. However, the level of personal attention you receive at most credit unions is exceptional. The atmosphere tends to be more laid back, and communication is core.
Because credit unions are community-based and each member is a co-owner, relationships are a priority. You are likely to encounter the same people at each visit. These developing relationships can make a real difference when you need a loan or experience a problem with your account.
At large banks, the customer service will be more professional and by the book. Employees cannot be flexible with rules or policy, regardless of how long you have been a loyal customer. Bank employees are loyal to the bank, so you wont get the same personalized care you will encounter at most credit unions.
Whats The Difference Between A Bank A Trust Company & Credit Union When Looking For A Mortgage
Whether youre a first-time homebuyer or a seasoned real estate investor, understanding the fine print of your mortgage can be trying at times. Which is why in this article were going to outline the difference between getting a mortgage with a bank, a trust company and a credit union to help you better understand your options when choosing a mortgage lender.
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Advantages Of Credit Unions
Most credit unions offer a more-personalized service experience. A bank may be spread out and not have every decision maker within a single community. Credit unions, on the other hand, may have every decision maker close by, allowing you direct access to the people making decisions about your potential loan or other financial transactions.
Credit unions may offer other benefits, like higher interest rates on checking accounts and savings accounts, than traditional banks. That said, online banks may offer higher interest rates than many credit unions, so they may be worth considering. But if you want to keep your money local, a credit union will likely offer the best rates.
Finally, credit unions typically offer lower interest rates on loans than competing local banks. Whether youre looking for a personal loan, car loan or mortgage, compare the rates offered by your local credit unions to see if youre getting the best deal.
Convenience Of Banks And Credit Unions
The second banking feature to consider is convenience. Be realistic about how you prefer to bank. Do you like having a branch down the street with tellers who know you by name when you walk in? Or do you prefer to make transactions remotely using online bill pay or mobile apps?
ATMs are another convenience that may be important if you like to access cash when youre out of town. Just like some banks tap into shared ATM networks and reimburse out-of-network fees, so do some credit unions. So dont assume that a credit union wont be as sophisticated or competitive as a big-name bank.
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You Will Notice Lower Fees
Compared to national banks, credit unions have lower and fewer fees. This is the main reason I switched from a traditional bank to a credit union in the first place. Besides fees, many credit unions offer checks, withdrawals, other electronic transactions free from fees. One of the best benefits with credit unions is that many of them offer checking and savings accounts with no minimum balance and without any monthly account servicing charges.
Approval Based On Credit Score
is another area where credit unions are more forgiving. Your credit score is a number between 300 850 that gives lenders a way to determine your creditworthiness. It also gives a financial institution a simple way to gauge your borrowing and repayment history. From this, they can assume how probable it is that youll pay off your debt.
Members who have held an account for years and managed to keep their balance in the positive may get approval despite a low score and history of poor debt management. These are extenuating circumstances, but not unheard of. Banks, as you may have guessed, cant bend their rules so easily.
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Understanding The Difference Between Credit Union And Bank
What is a credit union? What is a bank? What is the difference, and what implications do those differences have for you, your family, and your finances?
Because bank is the more commonly-used term, lets start by delving a bit deeper into what a bank is. Try to think of a bank as a business or enterprise. Said another way, a bank is a for-profit institution. Many bankssuch as JPMorgan Chase, Bank of America, PNC, and Wells Fargoare large, publicly-traded corporations. As a result, these banks have to answer to their stockholders and are driven by a priority to maximize profits for those stockholders.
How Do Credit Unions Work In Canada
Most credit unions are provincially run, with legislation spelling out how they can lend, borrow, and invest. Provincial corporations or non-government insurers cover deposits. Some are members of the trade group, the Canadian Credit Union Association. Recent legislation paved the way for credit unions to expand and convert to a federal charter, but theyâre still member-owned and run as a cooperative.
Major domestic banks are federally regulated by OSFI, an independent government agency that also oversees foreign banks operating in the country, trust companies, fraternal benefit societies, loan companies, and life/property and casualty insurance companies. Bank deposits up to $100,000 are insured by the Canada Deposit Insurance Corporation . The Bank Act legislates federal banks and credit unions.
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