Most people assume that credit unions are just smaller versions of banks. But that’s not entirely true!
Knowing the differences between banks and credit unions and what they have to offer will make you more financially savvy. Not only that but choosing the right institution for your needs can save you some real money.
Before we look at the different services that banks and credit unions have to offer, it helps to understand how they operate.
Most of us understand that banks exist to make money. In other words, they are “for-profit” companies, which makes them competitive in the business world.
Banks can be local, regional, or national, and each is run by a paid board of directors. They have public investors who own stock in the bank. When the bank makes money, the surplus revenue is divided among these shareholders.
At a bank, you are simply a customer. Anyone can “join” a bank by opening an account or taking out a loan. You don’t have to be a shareholder to use the bank, nor do the shareholders have to be customers of the bank.
On the other hand, credit unions are not-for-profit institutions (don’t confuse this with charitable non-profit organizations). Credit unions are community-based, cooperative financial institutions. This means the mortgage loan you may take out, comes from another member’s savings account.
At a credit union, you are not a customer, you are a co-owner. As such, you must be eligible to become a member. Credit Unions are legally required to limit their membership to people who share a common bond or association. While each one has different requirements, most serve specific groups like corporations, churches, communities, worker’s unions, small businesses… the list goes on. But chances are, if there is a credit union close by, you will meet one of their criteria.
When you open an account or take out a loan, your credit union will require you to make a one-time “new member deposit” to the Share Account. This is always a minimal fee – under $10 – but it is what entitles you to be a shareholder.
Unlike banking institutions which exist to make money, credit unions exist to serve the needs of the members. They are run by a volunteer board of directors who are also shareholders. Because they are not-for-profit, the money earned by the credit union is used to decrease fees and interest rates and to increase services to the community.
Banks and credit unions both offer most of the same services:
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 won’t get the same personalized care you will encounter at most credit unions.
While credit unions excel at customer service, banks excel at availability.
Banks almost always have an extensive online presence, the latest apps, a 24-hour 800 numbers, numerous branches, weekend hours, and more ATM access. They stay on top of current technology to better serve you. This is one area where credit unions can’t compete at the same pace.
Otherwise, for most banking needs, the two offer identical services. Occasionally, specialized services that are standard at large banks might not be provided at some smaller credit unions, so make sure you ask before you join.
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.
No! And this is the single factor that makes the difference for you financially.
Since banks are for-profit, they usually offer lower interest rates to be competitive. But, they also tend to have higher fees for monthly maintenance on checking accounts and steep overdraft charges.
On the flip side, credit unions are not in business for profit. As such, they do not have to be as competitive. Credit unions may have higher interest rates on their loans, but lower fees on checking accounts.
What this means for you:
If you are searching for a loan, a large bank is probably going to offer you the best rate. If you are looking for the best deals on checking and savings accounts, chances are a credit union is your best option.
Your money is insured and considered safe at both types of institution.
What this means for you:
If your particular bank or credit union folds, your account may end up at another institution, but the balance will be replaced up to that amount.
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.
You must be logged in to post a comment.
Im so happy you posted this. Me & my mom were just talking about this because I have been debating on if I should open up & bank or credit union account because as of now I get direct deposit to my Netspend card & I need the change so I’m not tempted to swipe as much & to truly start working on my cash envelopes & sinking funds. Thanks again for all the great advice you are giving. I love being apart of this community!!!
Thank you for this! My boyfriend is with a credit union, I’m with a chase Bank. As soon as we get our insurance bill with BOTH our names on it (this is what they require for me to become a member), I’m switching to Schools First Credit Union 😊
Hi Kumiko!
I’ve been following you for little over a year now and I love the way you explain the essentials to “the little guy” that might not know the terminology. Besides this point, I was wondering if perhaps you knew if a credit union or credit unions in general exist in Canada? Thank you!
Love you tons!!!!
Hi I’m just thinking about joining one of the credit unions. For us and want to go and open up an account there and have a bit more information as we have never heard of these before.so will be checking these out.as we want to start to save money for our a deposit for our.1st flat as we want to buy this.we have been renting for such a long time now and nows the time for us to buy this as we could probably save a little money if we were to buy this property out right.than if we carry on just renting it.as the landlord can put the prices up at any time.so this is what we are now wanting to do now.and stop paying rent and start paying mortgage instead.and start to own this place we have.