The 4 key differences between credit unions and banks.
As you look at your options for financial institutions, you may wonder, what a credit union is. Is it just like a bank? At first glance it may seem that way, considering both offer savings and checking accounts, ATMs, loans and more financial services. Both also provide you with the same amount of protection, using federal government agencies to insure your deposit accounts up to $250,000. Behind the scenes, though, banks and credit unions are different in many important ways.
So what’s the difference?
Four key elements set credit unions apart from banks.
The biggest difference is that banks are for-profit institutions, while credit unions are not-for-profit institutions. That means banks are owned by shareholders while credit unions are owned by their customers or members.
When you trust your money to a bank, you are loaning that bank assets, which it uses to maximize profits – benefitting shareholders rather than you. You’re simply an account holder, and you don’t have any say in how the bank operates.
When you trust your money to a credit union, your role is a lot more active. You’re a member and partial owner of the organization, with voting rights. Plus, with a credit union, you are loaning the organization assets it uses to benefit you and other members, rather than focusing on shareholder profits.
2. Rates and returns
Because credit unions focus on serving members instead of maximizing profits, they can offer lower rates and higher dividends. Savings are passed on to members in ways like:
Higher dividends on deposits
- Reduced interest rates on loans
- Lower prices on other services
Consistently, credit unions are able to be more competitive than banks.
3. Account requirements
Credit unions typically have lower account balance requirements than banks. While banks often charge you a fee if your account falls below a certain amount, credit unions have much lower minimum balance requirements or none at all. Some credit unions, like SAC Federal Credit Union, let you open an account with as little as $5.
It’s also often easier to get a loan with a credit union. Because requirements are less restrictive, credit unions could be a great option for someone who’s been denied a loan at a bank or anyone looking to establish or rebuild credit.
4. Local commitment
Because member live in the area, credit unions tend to serve your community better than banks do. Credit unions also tend to remain small and local, focusing on projects close to home instead of getting involved in the sort of sprawling exotic investment schemes that can get big banks into so much trouble.
Value beyond banking
With a complete range of financial services and benefits beyond banking, credit unions have a lot to offer. And often you only need to live or work in the area to join. Combine all that with a local mindset, and it’s easy to see why a credit union may be the wisest choice for managing your money.
What factors hold the most weight for you when deciding on a financial institution?