When deciding where to open a new savings or checking account, take out a loan, or start a line of credit, you don’t have to limit yourself to local and national banks. Many people overlook credit unions, which offer financial products and services comparable to what you get at banks. There are essential distinctions between these two institutions, though, and if you want to make the best decision for your finances, here are things you should keep in mind.
Banks vs. Credit Unions: Profit Status
Credit unions and banks differ primarily because of their profit status. Banks are for-profit—they are privately owned or publicly traded. Meanwhile, credit unions are nonprofit institutions owned by their members. A credit union is a cooperative and opens membership to individuals from one industry, community, faith, or organization.
Since they are nonprofits, credit unions do not pay federal taxes. They can also receive subsidies from affiliated organizations, so making profits for shareholders isn’t a concern. Instead, a credit union aims to provide members with the most reasonable terms for financial products. Members get lower rates, pay fewer and lower fees, and earn higher annual percentage yields than they would get in banks.
Reasons to Choose Banks
Although credit unions are more member-focused than banks, making them sound like a better option, there are still many reasons why you might want to choose a bank.
First, banks are open to any consumer with a good banking history. Meanwhile, credit unions are only for members. If you or someone from your household does not belong to the community a credit union serves, you might be ineligible for membership. Consequently, banks are still the more convenient choice for people who do not have affiliations with communities. You could get membership in some credit unions, though, for a minimal fee.
Another reason why banks are still a good option is that they have more branches and ATMs compared to credit unions. You can find branches and ATMs of prominent local and national banks throughout any city. That said, credit unions also aim for increased accessibility to their members, partnering with other co-ops so they can provide more fee-free ATMs.
Banks usually have more resources to invest in financial technology like mobile banking apps, which are practically necessary in today’s digital-first world. Although credit unions have started to offer mobile banking and check deposits, they aren’t at the forefront of technological advancements in the industry, unlike banks.
Finally, banks tend to offer more financial products. For example, all major banks offer commercial loans, but not all credit unions do. Credit cards that banks offer are also likely to have bigger perks compared to ones from credit unions.
Reasons to Choose Credit Unions
Credit unions are known for their excellent customer service. Since they are cooperatives, they put their members first—you can expect personal attention and commitment to your needs at a credit union. What’s more, being part of credit unions is good for life—even if you leave the organization or community your credit union serves, you get to keep your membership.
A credit union also provides financial education. Aside from online articles and tools, they also conduct seminars on credit card management, preventing identity theft, homeownership, retirement, estate planning, and other topics crucial for financial health.
Credit union members earn interest on their deposit accounts or receive dividend checks if the institution earns profits. In this way, the money that the organization earns goes directly to its members. Credit unions also don’t have minimum balance requirements. They have lower requirements for opening accounts and charge less for non-sufficient funds, overdraft, and ATM fees. Lastly, the interest rates you incur on loans from credit unions will be lower than those you take out at banks.
A credit union offers similar products to a bank, but there are significant differences between them. Credit unions are more member-centric, and their products have lower fees and minimum requirements. Meanwhile, banks are for-profit, which means higher payments and smaller payouts to account holders. Getting a financial product from either type of institution has pros and cons—before you sign on, make sure you’ve studied which one is the best fit for you.
At Good Neighbors Credit Union, we prioritize the needs of people who live, work, or worship in Erie County. We are a Buffalo, NY credit union, expertly delivering a range of resources and products that help our members achieve their goals. Become a Good Neighbors member today and see your money strengthen your community!