So you’re ready to open a bank account. Congratulations! But before you open your new bank account, you’ll need to take a few things into consideration to determine which type of institution- a bank or credit union- is right for you.
Both credit unions and banks will keep your money safe, but they operate in different ways. Exploring the key factors that distinguish these two institutions from each other will certainly help you navigate your first foray into the banking world.
Key Differences Between Banks and Credit Unions
Although banks and credit unions both offer checking and saving accounts, as well as loans and credit cards, there are a few differences between the two that you may want to consider.
An overarching difference between banks and credit unions regards their profitability. Banks are for-profit institutions, while credit unions are not-for-profit. As basic as this may seem, many of their other differences stem from their profit status. Because banks are for-profit, their bottom line- not your best interest- is their focus as a business. Generally speaking, banks have lower interest and savings rates, but charge higher fees. If you’re looking for a more personalized banking experience with higher interest rates and lower fees, you may want to consider credit unions.
Benefits of Credit Unions Over Banks
As previously stated, credit unions are not-for-profit entities, which means they technically do not have customers, but rather members. Think of credit union members as part-owners of the credit union to which they belong, and membership is usually restricted to people in one specific group. This group may include people who live or work in a particular area or for certain employers, are alumni from the same college or university, or have a family connection to someone already a part of the credit union.
Credit unions are individually governed by a board of directors whose decisions are greatly influenced by their members’ best interests, so members can count on superb customer service. Additionally, if one member makes a deposit, that deposit could end up being a loan for another member. Team work makes the dream work, right?
The owner-operator nature of a credit union certainly has its positives, but there are scenarios in which banks are a better choice.
Benefits of Banks Over Credit Unions
Despite their high fees, banks have more to offer on the location, technology, and rewards front, as compared to credit unions. Banks offer large ATM networks, meaning you’ll be able to deposit or withdraw money at one of their machines without additional fees.
Due to their size, independence, and relative lack of capital, credit unions can’t compete with the big banks’ digital offerings, so if you want mobile banking, a credit union won’t be the choice for you.
Banks also best credit unions when it comes to international banking, so if you are someone who travels frequently, it may be wise to open an account at a bank. For those who are looking to invest, banks are better bets for specialized services like business accounts, wealth management, and investments.
How to Choose Between Banks and Credit Unions
The choice between banks and credit unions depends on the features and conveniences you’re seeking from a financial institution.
Both banks and credit unions are safe places to deposit money. Money deposited in a bank account is insured by the FDIC (Federal Deposit Insurance Corporation), while credit unions are insured by the NCUSIF (The National Credit Union Share Insurance Fund). These are both federal organizations, so your deposit is safe in either location.
If your preference is for low fees and customer service, a credit union will likely be a good choice. Alternatively, if the convenience of a large ATM network, international support, and mobile mobile banking are necessities for you, opt for a bank.
Regardless of choosing a bank or credit union, make sure to always ask about account features and fees. Determine your financial priorities, compare them to an institutions’ offerings, and decide between a bank and credit union accordingly.