Banks vs. Credit Unions: What's the Big Difference?

 


        Today’s post comes from the inquiry of a friend. What’s the difference between a bank and a credit union? Honestly, I said, I don’t know. I’ve used traditional banks and I currently use a credit union but I never thought to question the difference between the two. So, in order to address my friend’s question, I set-out to learn.

Let’s Start Off with the Similarities

        Before I break down the differences, I do want to point out that in terms of products and services, both banks and credit unions will be able to need your basic banking needs. Both institutions offer checking and savings accounts, access to various types of loans, and credit cards. Whether you choose to use a bank or a credit union, you will most likely be able to use direct deposit and have the ability to access mobile banking. Another important similarity is both banks and credit unions provide similar protections for deposits, with up to $250,000 in deposited funds insured against loss. Insurance is provided by the Federal Deposit Insurance Corporation for banks, and by the National Credit Union Administration for credit unions. If you’re uncertain as to whether or not your institution is federally insured, you can use the FDIC’s BankFind Tool or the National Credit Union Administration’s Credit Union Locator to find out.

 

So What Makes Them Different?

  • Organization Type: The major difference between a bank and a credit union is that banks are for- profit institutions, while credit unions are not-for-profit institutions.
    • Banks are either privately owned or publicly traded institutions. This means that the main goal of a bank is to turn a profit in order to pay its shareholders. Shareholders are essentially owners in a company, they reap the benefits of a business' success.
    • Credit unions, on the other hand, are owned by its members. Because credit unions are set-up as cooperatives—meaning it is owned and run jointly by its members who share the benefits—credit unions aren’t driven by making money. Usually, members of a credit union share some sort of affiliation, such as living in a particular area, working for a certain industry, or even being a part of a certain religion.

  • Eligibility: Providing you don’t have a negative banking history, everyone is eligible to be a customer at any given bank. However, in order to become a member of a credit union, you or a close relative (usually spouse, parent, child, etc.) must be a member of the organization that the credit union services. For instance, I am currently a member of a credit union that serves current and retired employees from the organization at which I work. Because I work there, I can become a member and my immediate family are able to become members too.
    • There are geographical-based credit unions like MECU Credit Union located in Maryland and serves anyone who lives, works, worships or attends school in Baltimore City.
    • As stated above, there are also faith-based credit unions like the Christian Community Credit Union, that requires you to be a member, regular attendee, employee, missionary, or student/alumnus of a Protestant-Christian church (or have a relative that is currently a member of the credit union).

If you’re in the market of finding a credit union, you can use My Credit Union to help you in your search.

  • Rates/Fees: Since banks are in the market to make money, they tend to have higher fees, higher interest rates on products offered, and generally pay lower rates to its customers on savings accounts because the bank is expected to make a profit. On the other hand, because credit unions are non-profits, any financial gains earned are returned to its customers through charging less interest on loans, offering lower fees and paying higher rates on savings accounts.

If you are interested, you can compare the national average rates for 23 common loan and deposit products at banks and credit unions here.

  • Convenience: Now banks are generally going to win out in the category of convenience. Banks tend to be larger organizations than credit unions—meaning they typically have more branch and ATM locations allowing you easier access to your money. Since credit unions are usually smaller and more geographically based, they generally don’t have many locations available to serve its customers. I know for me, personally, the credit union I use has two branch locations. One of these locations is located in the building where I work which makes it convenient for me, but I am only able to use it during the work week. If I was someone who needed access to my bank on the weekend, this credit union would not be a viable option. However, it is important to point out, credit unions often partner with other co-ops to provide additional branch availability and access to fee-free ATMs nationwide. So, you just have to be sure to do your research beforehand to see if the options available work for you.

         

        Just to recap, I put together the table below to highlight and make it easier to compare the differences between a bank and a credit union. Hopefully, you now understand the difference between the two and will be better prepared to decide which to use the next time you’re in the market for a new banking establishment. 

 

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Comments

  1. Cool read. Interesting about the church Credit Union. *Interest Rates* When I was looking to buy a car, I checked with PNC Bank and my old job’s credit union. Pnc gave me an interest rate that was a FULL point and some change higher than what my Credit Union was able to give me. So yea like, you mentioned above, the credit union is able to give customers lower rates.

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    1. Thanks for the comment Liz! I remember my mother always telling me that credit unions had lower rates for its customers but never really understood why. Now I get it! Because they're non-profits and aren't in it to make money, we as customers are able to reap the benefits through things like lower rates.

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  2. When I moved to the U.S., I got so confused about having banks and credit unions (having never heard of or seen a credit union before). This has helped me figure out the difference — it’s interesting how they position themselves with lower rates, etc. Thanks for sharing!

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    1. Thanks for the comment Molly! I've lived here my entire life and never thought about the different until my friend asked. *SMH* But after doing the research it all made a lot of sense.

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  3. Great overview highlighting the differences between credit unions and banks. I've joined credit unions in the past, and they have a lot to offer! Currently, we're not using a credit union. The last one we were in was not very close and not open on Saturdays. It became too inconvenient.

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    1. Yes Super Saver, convenience is key! Like I mentioned above my bank is only open Monday through Friday and it is not close to where I live. But it is located where I work which, before COVID , still made it convenient. Luckily, I am able to do most banking online so the loss of convenient access to the physical branch due to me working from home now hasn't affected me too much. Thanks for the comment!

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  4. OMG! This was so helpful! I have an account with both but rarely use my Credit Union due to their operating hours. Now that I know this information, I think I can make an informed decision on which to use for certain transactions.

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    1. Yesssss!!!! That's the whole point of this post to help people make more informed decisions. :-) Glad to hear this post was helpful!

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  5. it is very useful and important post .thanks dear for sharing

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    Replies
    1. You're welcome! Glad you found it to be useful. Thanks for the feedback!

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