Managing your finances has never been easier with the vast range of banking options available in today's financial environment, and credit unions and banks are two of the most popular choices.
Despite offering similar services like checking and savings accounts and loans, it's important to understand that there are some significant differences between the two that you should take into account.
In this article, we’ll help you weigh the pros and cons of each option, so that you can choose the one that best aligns with your personal financial goals and values.
The Ownership Framework
Perhaps the most significant difference between credit unions and banks lies in their ownership framework. Banks are typically owned by shareholders and investors, while credit unions are owned solely by members.
Credit unions operate as non-profit organizations, built on “People Helping People” principles, with a primary objective to provide affordable and reliable financial services to members and prioritize community interests.
Credit unions are governed by a board of directors elected by members, while banks are run by a management team that reports to shareholders and investors that are expecting a profit.
The Membership Requirements
Membership and accessibility options also differ considerably between banks and credit unions. Generally speaking, banks are open to any person who wishes to use their services, regardless of their location or employment.
In contrast to that, credit unions typically have a set of membership requirements that must be met before you can be admitted as a member. These requirements may include living in a specific area, working for a particular employer or in a certain industry, or even belonging to a specific organization.
While membership requirements can make credit unions less accessible to some people, it also means that credit unions tend to have a more united, strongly linked community of members within a certain area, who share common values and interests.
Banks generally have no membership restrictions and allow anyone to open an account with them, offering a wider range of financial products and services than credit unions. However, they also have stricter account requirements, such as minimum balances and additional costs.
The Costs and Interest Rates
Account costs and interest rates differ significantly between credit unions and banks. As non-profit organizations, credit unions often charge lower fees and offer higher interest rates for their savings and checking accounts. For those looking to increase earnings on their deposits while minimizing banking fees, credit unions can be a more attractive option.
While credit unions typically offer lower cost services for account maintenance, overdrafts, and ATM usage, it's worth noting that they may have a narrower range of services compared to banks, and may charge higher fees for services that fall outside of their primary areas of expertise.
The Degree of Service and Customer Support
Credit unions are known for their personalized service and the community-oriented approach to banking that they offer. By being smaller and more locally focused, credit unions are able to provide a much higher degree of attention to each member.
In contrast, banks often have greater resources and are able to offer a broader range of services. However, due to their size and scale, banks may not always provide the same level of personalized service and support that credit unions are best known for.
The Levels of Security
Both credit unions and banks are subject to strict regulations and provide various security measures to safeguard your funds. Nonetheless, there are variations in the degree of insurance and protection offered by each. Banks, for instance, are insured by the Federal Deposit Insurance Corporation (FDIC), which guarantees up to $250,000 per depositor, per institution.
Credit unions are insured by the National Credit Union Administration (NCUA), which offers up to $250,000 in insurance per depositor, per institution. Additionally, it's important to note that credit unions may also offer supplementary insurance coverage through private insurers to provide better protection for larger deposits.
Enjoy the Perks of Joining Riverways
While credit unions and banks share many of the same services, it's essential to recognize that there are key distinctions between them that can impact your financial choices.
Credit unions, lacking external shareholders, channel their earnings back to their members through dividends, which may translate to better savings rates, reduced loan rates, lower fees, and more cost-effective services.
Selecting a financial institution that aligns with your personal needs, values, and priorities is crucial in making the best decision for your financial well-being.
For over six decades, Riverways FCU has been providing a positive difference for members throughout the 27 counties that we serve. Experience the perks of becoming a member today.
Find out more on how to become a member.