Selecting your financial institution is one of the most momentous decisions you will make in your adult life. You may be seeking out a trusted, highly esteemed name to protect your valuable assets, but don’t rule out the lesser-known establishments in your hometown. Both banks and credit unions offer a full slate of banking services including checking and savings accounts, loans, lines of credit, mortgages, and other services. As you’re considering whether to choose banks versus credit unions, check out the top features that set them apart.
Structure and Rates
The key difference between banks versus credit unions is that the former is for-profit and the latter is not-for-profit. Because banks are for-profit businesses owned by a group of investors, they’re more likely to charge higher rates in the interest of turning a profit. Credit unions are organizations owned by their members. That structure allows them to extend free checking and higher interest rates on savings accounts — as well as lower interest rates on loans. However, there are certainly exceptions to the rule. Small local banks might operate in a similar way as a credit union. And there are some credit unions whose rates meet or exceed those charged by big banks. Make sure to compare rates as you’re deciding whether to choose banks versus credit unions.
Credit unions impose more restrictions on their customer base. Because they are not-for-profit, they must limit their clientele. That means they may require their customers to work for a certain company, belong to an organization, or live in a specific geographic area. However, not all credit unions impose the same restrictions, and it’s fairly easy to find one that will offer you membership — particularly one that just requires you to live in a designated locale.
The not-for-profit nature of credit unions makes them ideal for those who don’t boast a completely blemish-free credit record. They’re more likely to work with you and approve you for a loan at a lower interest rate. By comparison, a bank — which needs to abide by a set of corporate loan qualifications — might either turn down a poor-credit applicant or charge them a much higher interest rate.
A credit union or small bank may offer a more personalized experience. You may develop relationships with the employees — who can assist you when you have a problem or want to take a major step, such as applying for a loan. The customer service experience at a large bank might be less personal but could deliver quicker and more convenient results. Consider whether you will actually want to walk into a branch and greet the employees by name. A credit union or local bank would likely be the best fit for this preference. If you’re more likely to do all your transactions online, just make sure the institution offers a user-friendly website and or app — and a dedicated phone line if you have any concerns. While many credit unions now have this capability, a larger bank is more apt to have a fully streamlined online user experience.
Even if the institution closed its doors, your money would be safe in either a bank or a credit union. Banks insure their money through the Federal Deposit Insurance Corporation (FDIC). Most federally insured credit unions use National Credit Union Share Insurance Fund (NCUSIF) insurance. Whether you store your money in a bank or credit union, both types of institutions will offer up to $250,000 in insurance protection per account. The exception is a state-chartered credit union, which typically uses private insurance that may not be as fail-safe as federal insurance backed by the U.S. government.
Making the Decision
Your choice will ultimately come down to your own priorities. Make a list of your “must-have” qualities that you’re seeking in a financial institution — and then see how your top candidates stack up. If you’re looking for a nationally known bank with easily accessible ATMs wherever you travel, a bank might be the right choice for you. But if you prefer to frequent hometown organizations and businesses, you may feel more at ease in a credit union (or a small neighborhood bank). If lower fees and interest are important to you, choose the institution that extends the best rates.
Weighing the pros and cons of banks versus credit unions is just one of the many tough financial decisions. For more help sorting out your financial life and your credit, get started with a free consultation at Ovation Credit with a professional credit analyst.