Credit Union vs Bank: Why Utilizing Both is Better for Your Money


credit union vs bank

Is your bank giving you a tough time? Do you dread interacting with the sour-faced employees at your local bank branch? Or maybe you are tired of their shitty services? Or outrageous fees? Fortunately, you’re not entirely without options. You can consider credit unions if you’re not getting your financial needs adequately addressed by your bank.

Credit Unions are fast becoming a credible alternative to traditional banks as consumers seek to avoid higher fees and uncertain regulations.

However, before you dump your bank for a credit union, you must determine what is most important for your peculiar financial needs. Although different, banks and credit unions are very similar in the way they operate. And they are progressively converging in terms of their services and products. However, the experience you’ll get as a consumer may not be the same.

Today’s credit unions, unlike their predecessors, offer many of the services that traditional banks offer. These include checking, and savings accounts, certificate of deposits, mortgages, auto loans and some even provide business lending as well.

And just as with the Banks, credit union member’s funds are federally insured. The National Credit Union Share Insurance Fund (NCUSIF) covers up to $250,000 for each depositor, per institution. If you have more deposits than that, you could protect yourself by spreading the funds across several credit unions or arrange the ownership of your accounts differently.

So how are Credit Unions and banks different?

For the majority of people, even for the financially savvy, the little differences between banks and credit unions can be a bit puzzling.

Credit Union vs Bank: The Differences

The significant difference between banks and credit unions is that banks operate to return a profit to their shareholders, while credit unions are nonprofit organizations.

Credit unions claim to have better customer services and charge lower fees but have higher interest rates. While banks typically have lower interest rates and higher fees. Furthermore, banks tend to conveniently have more locations, mobile access, technological efficiency, and rewards programs.

Notwithstanding, credit unions offer better customer satisfaction because they are not profit-oriented. Although smaller banks, such as those in small communities, may rank with credit unions when it comes to offering premium services.

Banks and credit unions alike provide similar services such as checking and savings accounts, loans and business accounts. With their minor differences, credit unions and banks offer basically the same services and products.

credit union vs bank infographic

Credit Unions: Advantages and Disadvantages

Since credit unions are non-profits, they are owned by members who are also customers. To join a credit union therefore, you have to qualify for membership.

Qualification to join a credit union is usually predicated on your being a part of a group.

Groups or associations that form credit unions include company employees, communities, churches, schools, etc. even if you are not a member of any of these groups, you can still be a member in some instances.

Other ways you can join a credit union include having a family member or spouse introduce you to their employer’s credit union or finding credit unions based near you geographically.

Customers, as a rule, rate credit unions higher than banks in terms of consumer satisfaction. This is because they are member-owned and each customer is essentially an investor. Thus, there’s more personalized and attentive customer service.

Still, credit unions do not readily adapt to new technology that offers user-friendly experiences as readily as banks.

Banks: Advantages and Disadvantages

Although bigger banks tend to have lower customer satisfaction ratings because of their more impersonal approach to customer service, smaller banks can have excellent ratings too.

But the overall customer experience with banks, even though somewhat cold, tends to be consistent due to uniformly trained staff. Unlike that of credit unions which could vary.

Banks often charge higher fees than credit unions, but you don’t need to belong to any group or association to open an account.

Finally, banks have a more extensive branch network, better technology and are more accessible than credit unions. Financial technology in forms of apps is becoming increasingly popular as more people rely on their mobile banking services. What this means is that banks are often more convenient. Although credit unions lag behind when it comes to technology, some offset the advantage of the extensive branch network of banks by sharing a branch network of 5,600 branches with over 54,000 surcharge-free ATMs.

Credit Union vs Bank: On Investments

Because credit unions do not have external investors whose motive is to make a profit without regard to the customer, they offer better deals to their member-owners. The benefits of this customer-centric approach are better interest rates on loans, higher interest paid on savings accounts and CDs, and free checking accounts. All of which leaves more money in your pockets.

But banks have more attractive rewards programs, which is often a major consideration for customers when choosing where to put their money and obtain credit cards. Most banks have some sort of rewards program that awards customer bonuses and points when they use their credit cards. This is hardly the case with credit unions. Not even all credit unions offer credit cards to their customers. According to a report, of the 5,644 credit union registered in the United States as of March 2018, only just 61.2 percent offer credit cards.

For customers, who are delighted with the benefits of credit card rewards, banks are a better option.

However, if your priority is to invest your hard-earned money, shop around for the best CD rates and Interest rates. This will best determine which financial institution will be appropriate for your needs.

Credit Union vs Bank: On Safety of Funds

The safety of funds is high on the list of most customer’s priorities when choosing a financial institution. Customer funds in federally insured credit unions are backed by the NCUSIF while funds in banks are insured by the FDIC.

The FDIC and the NCUSIF both can cover up to $250,000 per depositor under current laws. When a depositor’s funds exceed these amounts, he can open another account with his bank or at different institutions.

The bottom line is that your funds are equally safe with either credit unions or banks.

Credit Union vs Bank: On CD Rates, Loans, and Mortgages

For CDs (certificate of deposit) banks usually offer a better APY than credit unions.

On the other hand, credit unions usually have lower fees and borrowing rates than banks since they are not profit-oriented. Because they don’t have external investors to please with high revenues, credit unions often offer lower fees and interest rates on loans and mortgages. Another way of putting it is that they pass on the income generated to their member-owners.

However, your credit union may sell your mortgage to a third party after closing, which could leave your mortgage in the hands of another party other than your credit union. This means that you will deal directly with the mortgage service and not your credit union.

Still, mortgage closing fees charged by credit unions on the average were lower by $200 when compared to banks, according to a CUNA’s report. This compensates for the third-party interaction.

Although you could save some extra cash in mortgages or fees, dealing directly with your bank instead of a third party could be more comfortable for you if you prefer direct communication.

Among 50 of the biggest credit unions in the United States, 82% offer free checking and do not charge monthly maintenance fees, according to a survey done last year by Bankrate. Banks tend to charge higher fees than credit unions since they have to return a profit to investors.

Most credit unions offer checking accounts with no minimum balance requirement and no monthly service charges. On the contrary, free checking accounts at banks come typically with conditions such as minimum balance requirements or the bundling of additional products like credit cards. Even penalty fees for infractions such as late repayments and bounced checks are also higher in banks.

Why You Should Use Both Services If Possible

What exactly do you prioritize when it comes to your expectations from your financial institution? Exceptional customer service? New technology and easy to use Fintech apps? Or you prefer a bank close to where you live and work? Or is it better rates and lower fees?

Thoroughly research your options bearing in mind your peculiar needs.

Credit unions typically have fewer products than banks. They do not have as many options when it comes to business loans, credit cards, and investment products. And since they are typically small and do not have access to tons of money, they are slower to adopt modern financial technology which eases transactions for customers. They also have fewer branch network, and membership is mostly based on association.

However, credit unions are more community-oriented than banks and offer you lower-cost services and better customer services. Their interest rates are better both for loans and deposits. Furthermore, with a credit union, you have a say in the running of the affairs since you are an owner. You have the right to vote and be voted in as a volunteer board member to direct the union’s affairs. And regardless of the size of your deposits, each member of a credit union have equal votes.

Do you now see why we’re recommending that you should utilize both to your advantage? If becoming a credit union member is an option, why not become a member and take advantage of both of their financial services if that will serve you better. After all, it is your money and you decide what will best favor you. 

Founder, writer, thinker and digital marketing addict. He is passionate about self-development, personal finance, and the stock market. He believes that financial knowledge combined with self-discipline is the key to achieving financial freedom. An avid golfer and a 15 handicapper.

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