Credit Unions vs Banks: Which is the Best?

There has been credit unions and banks rivalry in recent years as both have similarities in what they offer to their members and clientele. However, there are minor differences between credit unions vs banks which go a long way in influencing the directions consumers take when dealing with money.

In this article, the reader will be taken through a brief insight into credit unions and banks, the benefits, the special attributes of credit unions, and how and why the institutions have prominence in the financial services market.

Then, we shall look at which one of the two may be the most perfect if you need them based on their fees, interest rates charged, customers services and investment opportunities.

Table of Contents

Credit Unions: An Overview

Credit unions are common financial saving and credit associations that are teaming up with their owners. This means that the surplus earned is used to provide added services to the members which in turn may include lower fees, better interest rates, or individual attention.

A credit union is based on the policy of “people helped by people”, and its main goal is to offer the highest quality of banking services to people with low and average income.

The member-facing services offered by credit unions may be less extensive than those offered by a bank, meaning that a credit union may have fewer physical branches. But this lack of branching can be more than made up for by the ever-so-small feeling of community camaraderie generated by the Credit Union.

Advantages of Credit Unions:

Lower fees: It is easier for credit unions to set low fees compared to banks. For example, they may miss out on charges like the monthly maintenance fee, overdraft fee or minimum balance fee to mention a few.
Higher interest rates on savings: Banks on the other hand, pay lower interest rates on savings than credit unions, that means members of the credit unions get better returns from their deposits.
Lower interest rates on loans: Credit unions offer reasonable rates on loans like auto and personal, so that credit union members can afford to borrow.
Community-focused: Most of the credit unions are official service providers to certain societies, companies, or associations of people such as employees, residents, or members respectively. This gives community focus a certain level of flexibility and client orientation when it comes to financial services.

Cons of Credit Unions:

Limited branch and ATM access: There are generally a fewer number of branches and ATMs compared to banks, which means it is sometimes difficult to withdraw money or perform any physical operation.
Membership restrictions: Usually, to become a member of a credit union, a person must fulfill certain criteria concerning employer, place of residence or organization.
Limited investment options: Credit unions keep fewer investment products as compared to other commercial banks. Thus, you may lack the opportunity to expand your riches.

Banks: An Overview

Banks are profit seeking legal entities controlled and operated for the benefit of owners or shareholders. They seek to earn as much profit as they can in various ways including they can charge commission, more interest on the amounts deposited and to offer as many products and services as possible.

Banks have several branch offices and ATM centers to support the customers, so, the customers are free to withdraw their cash and carry out their transactions at any time they wish.

In return for such conveniences, you might have to pay more for a transaction, receive little or no interest on the money you deposit in a saving account and at times lack touch-and-feel personnel service.

Advantages of Banks:

Wider range of services: Banks are prepared to provide you with a wider range of investment products like mutual funds, stocks, bonds to create wealth.
More convenient: Possible with more branches and number of ATMs, individuals are likely to easily withdraw their money or transact as desired.
Debit card benefits: Some of these incentives include free auto rental, free access to additional warranties and free travel, accident insurance enrolled with the debit cards of the banks but not the credit unions.
More competitive rates: It is not always the case, but some banks may provide better interest rates on saving accounts and even more uncompetitive rates on loans than credit unions.

Cons of Banks:

Higher fees: Another reason is that banks may charge more fees than credit unions as may include monthly maintenance fees on checking and savings account, ATM fees, overdraft fees amongst others.
Less personalized service: Another disadvantage is that they don’t have personal touch from the credit unions as they normally are big banks.
Profits before people: Although banks remain obliged to fulfill their customers’ needs, their main objective is to make profits for shareholders, which could mean even fewer community-based projects.

Also Read – High-Yield Savings Accounts: Pros and Cons

Credit Unions vs Banks: Understand Key Differences

Let’s compare credit unions vs banks to determine the best choice. Learn which option offers better rates, service, and community focus for finances.

Today Market

Cooperatives have been in existence since the early 20th century and credit unions were formed out of these cooperatives together with a realization that many people could not access credit facilities from banks. Today, they are one of the significant branches of the financial industry and have millions of members around the world.

On the other hand, banking has its roots from early Egyptian, Greeks and Romans and was formally established in the modern world in the 18th century. Banks have grown over the years to become large and diversified financial institutions that characterize the global financial market.

Membership and Ownership

Another way that credit and unions differ from banks is based on their functions or operations and organization.

Credit unions are non-profit making organizations which are in the form of cooperative groups owned by members. This leads to the benefit that any profits credit union earns are repaid to members in the form of reduced charges, higher interest on deposits, and favorable loan terms. Credit unions, on the other hand, are known to require the members to meet some requirements that approve their membership of the credit union.

On the other hand, the banks are commercial institutions established to make profits for the shareholders that own the banks. They are established to be profitable and produce profits to the owners and investors in the firm. In contrast, banks have greater reach, and anyone can open an account and obtain their services; individuals and corporates are embraced as members.

Services Offered

Banks include credit unions and deliver financial services including checking accounts, saving accounts, certificates of deposit (CDs) and credit.

However, credit unions are often institutionally confined to offering a fewer number of services since they are established for the benefit of members who own the credit union. While credit unions are often formally like full-service banks in that they offer complete service with the same types of accounts and products, many credit unions have a relatively small number of branches and branches and offer more personalized service, thereby having a better understanding of the credit union’s members and their financial status.

Banks also provide many more services but with many branches and ATM centers available all over the world. This makes it easier for the customers to be able to solve their needs such as business and other financial transactions that they need to do through mobile phones. Also, the functionality of banks can be supplemented by cooperation with other credit organizations, creating the conditions for their customers to receive various services, including investment services and insurance.

Interest Rates and Fees

On of the greatest benefits associated with credit unions is the kind of interest rates that they charge on their loans and what they pay to their savers. Credit unions are also not for profit institutions and hence can charge lower interest rates to members than for profit commercial banks. Furthermore, credit unions have comparatively low charges for their accounts most of the time, for example, charges for ATM access and overdraft.

Since banks are profit-oriented often, they offer higher interest rates on the loan and lower on the saving account. This is so because they require to make profits for their shareholders. However, it should be noted that fees at banks may be higher than fees charged by credit unions but this is more prevalent to non-members or individuals with bad credit.

Loans and Credit Limits

With regard to the loan products, both credit unions and banks provide personal loans, mortgages, and credit cards for its users.

As for credit limits, credit unions provide less credit limits than banks sometimes provide or even always provide. They bear some resemblance to credit unions, which may not have as close a relationship with each of its members as those two companies and may not want to loan too much money to one person. But credit unions also provide more affordable loan rates, which means borrowers will be paying less in total cost for credit union loans.

Banks usually extend more credit limits, especially to consumers who have a good stand on their credit ratings. This means that while the customers may get the chance to borrow more from banks they may be charged higher interest and fees. Proximately, there are numbers of loan products like line of credit and small business loans that are available to consumers through a bank.

Online and Mobile Banking

Convenience created by internet and mobile banking are one of the major non-financial benefits when selecting a financial institution in the present-day world. Credit unions and similar banks provide well-established internet and mobile banking functions to personalize users’ financial management.

However, the availability of the easy-to-use interfaces as well as the features of these applications may differ from institution to institution. You should definitely check out how both credit union and bank mobile applications work, as the one offering the most convenient use for you is the best one.

Services Consumer Participation

The last, but the most important, difference between credit unions vs banks is in their participation in the community. Several credit unions would embrace the support of community initiatives, education on services, scholarships, and many more services for the members of the credit unions and other members of society.

Even though not all banks lack engagement in community Activities, many banks are mainly interested in maximizing their revenues and may offer priority to their shareholders rather than the community members. Nevertheless, it is possible to come across certain banks that provide community support, and consequently, furthermore detailed analysis of their activity in the sphere is necessary.

Also Read – What are Mutual Funds and How to Invest in Them?

Credit Unions vs Banks: Which is the Best Option?

When choosing between credit unions and banks, consider the following factors:

Your financial needs: The same is important in determining and evaluating one’s financial needs and goals. So, if you need more banking services, say, investment affairs, management services, etc., then it is wiser to entrust it to the bank. If you prefer lower fees, high interest rates for savings and low interest rates for loan, a credit union will suit you better.
Location and accessibility: Small clients will also consider the nearby branch and the convenient facility of automatic teller machines. Your business may require easy access to a physical branch of a bank and hence the choice of a bank. If you are fine with being served in a rather parochial institution, then a credit union will be appropriate.
Member status: Membership is often attained when joining a credit union, one has to fulfill certain conditions. If you fail to meet certain criterion for joining a particular credit union, then perhaps a bank will do.
Online and mobile banking: If you are dependent on the mobile and online banking services then you need to consider the quality and the services being offered by the various firms.

Conclusion

With the mentioned, credit unions and banks as financial institutions are good and bad at the same time and the choice made by the customer of financial institution is being made. It is important for those who are seeking budget-friendly services, low costs and an individual approach – credit unions might be the way to go. However, there may be cases where you desire to have more than one service; need international banking or specific types of loans then banks may turn out to be more flexible.

Finally, the choice between credit unions vs banks depend only on the individual, but it is advisable to consider various offers from credit unions and banks. By putting into consideration aspects like membership, services delivered, interest rates, charges, loans, credit ceilings, internet and smartphone vocal banking as well as the firm’s impact regarding the community, then you can arrive at the decision in the best interest of your financial health.