What’s the Difference Between Banks and Credit Unions?

Differences Between a Credit Union & a Bank

Traditional banks and credit unions are similar, and offer lots of the same services, but they’re more like cousins than twins. They’re related and similar but aren’t the same.

• The primary difference between a bank and a credit union is that a bank is a for-profit institution, and the goal of the business is to make money. A credit union is a nonprofit and has a larger focus on serving the needs of its members.
• Anyone with good banking history can use a bank and open an account. But in order to join a credit union, you must qualify for membership or pay a fee.
• Whether you choose to bank with a credit union or a traditional bank, make sure that your chosen financial institution is insured against loss or theft. Avoid any bank that doesn’t have proper insurance and isn’t backed by a government institution. Look for banks that are FDIC insured, and credit unions that are backed by the NCUSIF.
• Due to their for-profit nature, banks will typically charge higher fees or require a minimum balance for accounts. Many credit unions will offer free checking accounts to their members and won’t require a minimum balance. Since they’re not trying to turn a profit, credit unions don’t have as many fees, or the fees are significantly smaller.
• Interest rates at credit unions tend to be higher than those at banks because they’re catering solely to investors. Traditional banks need to pay their investors and shareholders, so the interest rates tend to be lower because any profit needs to be spread among more people.

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Benefits of Using a Bank

Traditional banks can certainly claim many benefits. Because they have more resources at their disposal, they can afford to put money into technological infrastructure. This means that their apps, website features, and online banking are typically top notch. You can count on their technology to work when you need it to, which can be helpful when you’re traveling on a budget.

There’s also a certain amount of convenience that comes with using a bank with national reach. There are likely to be physical branches nearby, as well as ATMs for your bank, so you can avoid having to pay pesky fees associated with using a nonaffiliated cash machine.

If technological usability and convenience are important to you, consider using a traditional bank as your financial institution.

Benefits of Using a Credit Union

If you’re a member of a credit union, you may appreciate the service and resources that are available to you. Since a credit union serves its members directly, customer service is more personalized. Additionally, these financial institutions tend to offer counseling, coaching, and other financial literacy resources since they have an interest in their clientele being successful with money, rather than turning a profit. Credit unions will also take a larger role in their local communities: offering scholarships and pitching in the help with fundraisers.

Other benefits to banking with a credit union include lower fees, higher interest rates on savings and lower interest rates on loans. They typically don’t require a minimum balance on checking or savings accounts, and you won’t incur a penalty for not using direct deposit. Credit unions offer many of the same accounts and services as a traditional bank, and the lower fees and customer service are hard to beat.

Understanding the difference between a bank and a credit union can help you decide what type of financial institution to use. Whether you prefer infrastructure and convenience or service and community, you’re bound to find the perfect fit for your financial needs. Just make sure that your bank of choice is properly insured.