Are you looking for a new place to bank? Whether you are tired of certain fees, looking for better rates, or something else – you are not alone. The good news is you have options. And knowing the differences between banks and credit unions can make a big impact on your own financial situation. So, let’s break it down.
Here are the 4 main differences between banks and credit unions:
Business Models That Matter
The first way that banks and credit unions are different is how they operate their business. Banks are for-profit, meaning they exist to make money for their stakeholders and, if they are publicly traded, their shareholders. Credit unions are not-for-profits and exist to serve their members, not shareholders. A credit union will use deposits from members to then loan to other members in their community. For example, Civic works with people, small businesses, and local government employees. Deposits from Civic members are used to provide loans to fire departments, small businesses, consumers, and others to serve the needs of the local community. A large bank may be locally located, but it sends deposits to other states for customers to use.
Large Institution Versus Smaller Credit Union
The average bank is about double the size of a credit union. For some people, that may mean more branches, employees and people to process your needs. But for others, a large bank could mean high overhead costs and routine fees for nearly everything—from ATM withdrawals to recurring deposit, checking or business account fees. Know what matters to you and evaluate the products and associated fees for accounts, transactions, and loans. Most credit unions are smaller than major national banks. That smaller size can translate to more personal service and guidance specific to you. At Civic, for example, we have certified financial planners on our Member Services team. They help guide members on everything from improving credit scores, securing a loan, and saving for retirement—all for free.
Rates Impact Your Wallet
The impact of rates is important for borrowing money and earning more money on your existing deposit accounts. For example, loan rates are important because they directly impact the cost to you of borrowing that money. A lower loan rate means it costs you less to borrow the money and can make your payments lower, which can make it more affordable. Another rate to pay attention to is the dividend rate; money you earn from your money already in a savings or checking account. The higher the rate, the more money you can earn from your own deposited money. Getting good rates matters, so definitely pay attention to them. In general, credit unions tend to offer lower loan rates and higher dividend rates on savings and checking accounts than traditional banks.
For either a bank or credit union, you will need to make a deposit to meet the minimum balance requirement to open a checking or savings account. At Civic, this ranges from $1.00 - $5.00. At most banks, if the balance is met (and you do not owe another bank money), most people can open a bank account. Since a credit union is dedicated to serving its membership, there may or may not be certain requirements to join. Each credit union has its own set of requirements for eligibility. For example, Civic works with local government employees, their families, friends and small businesses. Because of this local government focus, you might initially think that you are not eligible to join. But you can be eligible by voluntarily answering a few questions. While some credit unions only serve specific groups, such as Navy personnel or another group, Civic has members who are people like you.
When considering a new financial institution, it’s important to look at the pros and cons of both banks and credit unions alongside your personal situation; what someone thinks is a positive, another might see as a negative. Your choice will ultimately come down to which option meets your unique needs in your community. The good news is there are options for everyone.
Disclaimer: You + Money blog posts are provided for informational purposes only and not intended to replace the advice of a financial, legal or accounting advisor.