Banks vs Credit Unions: What's the Difference Anyway?
Banks and Credit Unions are the Same Right? Not Quite!
If you're looking at opening an account at either a credit union or a bank, you may be wondering what the differences between the two are. Today, we're going to dive in and explain the major differences between banks and credit unions.
From profit models to fees and customer service, let's analyze exactly what the benefits and drawbacks are to each. We want you to make an educated decision going forward. You've worked hard for your money, and you should pick a financial institution that will provide you with the exact kind of service that you need.
Before you lose interest... (sorry) we thought we would give you a quick overview of the entire blog post for those that just want the quick points.
- Credit unions are non-profit financial institutions that are owned by members, while banks are run by investors looking to make a profit.
- Credit unions almost always have better rates on loans and higher interest on accounts.
- Big banks may have more locations.
- Banks usually charge higher fees than credit unions.
- Credit unions (as a whole) have better customer service than banks (that's research talking, not us.)
- Credit unions can partner with other credit unions in order to offer access to nationwide ATMs and banking.
Alright, for those that want that explanation in a little more depth, let's talk shop.
What is a Bank?
In essence, both banks and credit unions are financial institutions that accept deposits and create credit for the public.
Banks are run on a for-profit model. This means that banks are owned by investors, which could be a few key individuals or thousands of anonymous shareholders. Large banks are listed on the New York Stock Exchange, and small banks are typically owned by a few wealthy individuals.
To generate a profit, banks work on a spread. Even though modern laws have made this spread incredibly complex, the basic element is that banks will charge high-interest rates on loans and give low-interest rates on checking accounts to generate a profit.
Even though banks typically don't offer competitive interest rates, they do have a massive structure due to their for-profit model. Some of the larger banks have 5,000 or more locations, which makes sense if your primary goal is getting as many people signed up so that you can improve your bottom-line.
What is a Credit Union?
Like banks, credit unions accept deposits and issue credit for the public. However, instead of operating on a for-profit model, credit unions are non-profit. Credit unions are owned by their customers — known as "members" — instead of investors.
Because credit unions are owned by its members, credit unions typically community-driven goals that shift their priorities to community service and local outreach.
What Does it Mean to be a Member?
Credit unions are owned by members. Every person that has an account at a credit union is a part owner in that credit union. Instead of getting a paycheck — like you would with stock — credit unions disperse profits by offering lower interest rates on loans and higher interest rates on checking accounts.
Benefits and Drawbacks
While both banks and credit unions accept deposits, each one of them does offer a different service model, so it's important to understand what the benefits and drawbacks of each are before you go about opening an account with either of them.
- Large banks can have thousands of branches across the world, which can make accessing banking easier for some customers.
- Banks offer little-to-no interest on checking accounts, and they typically have higher interest rates on loans.
- Banks typically charge slightly higher fees than credit unions.
- Customer service at banks is typically less personable.
- Large banks accept anyone and everyone.
- Credit unions work on non-profit margins which allows them to offer competitive interest rates, lower fees, and low-interest loan options.
- Some credit unions (like us) have partnered with other credit unions in order to offer widespread access to ATMs.
- Credit unions are heavily community-driven and typically offer customers a more personable experience. This is part of why American consumers have much higher customer satisfaction rates with credit unions than they do with banks.
- Credit unions don't have as many branches as large banks.
- Credit unions typically have membership requirements.
Is My Money Safe in Both?
Depositing money with either a credit union or a bank is completely safe. If either were to fail for some reason, your money would be insured.
- Credit unions insure each account up to $250,000 with NCUSIF
- Banks insure each account up to $250,000 with FDIC
Both the FDIC and NCUSIF are backed by the federal government.
If you are carrying more than $250,000 in one account (otherwise known as ballin') with either a bank or credit union, it's a good idea to open separate accounts to protect your money. Some credit unions offer private insurance for those with more than $250,000.
Do Credit Unions and Banks Offer the Same Services?
Almost always, yes. Both banks and credit unions offer credit cards, checking accounts, savings accounts, loans (home, auto, land, manufacturing, etc.,) business accounts, and more.
Sometimes hyperlocal credit unions in small towns won't be able to accommodate things such as large manufacturing loans, but, usually, smaller credit unions are linked up to larger ones through partnership programs to accommodate larger volume loans.
Credit unions usually have the added benefit of offering services to members. As an example, we offer financial planning for all of our members.
Which is Better?
Sure, we're a credit union, so you're expecting us to go on a rant about how we're the best option under the sun. But, we aren't going to do that. Honestly, there are benefits to both. We aren't here to start a flame war with banks. We also aren't here to lure you into using a credit union without knowing what your options are.
Both banks and credit unions can be beneficial for different types of customers. Banks can offer some great technologies, have tons of locations, and have fancy schmancy logos and marketing. Credit unions, on the other hand, are going to get you more "bang for your buck." Credit unions offer higher interest rates on accounts and lower interest rates on loans than banks.
It's not only about the money though, credit unions typically receive higher satisfaction scores across the board for customer service.
The great thing about credit unions is that, even though we may have fewer locations, we like to partner with other credit unions so that you can use our services nationwide. This isn't true of all credit unions, and not all banks have tons of locations.
The end message here is that you should pick an option that's best for you. We want you to succeed in your financial goals whether or not it's with us.
We offer some pretty incredible interest rates ourselves here at Bellwether. If you live or work in New Hampshire, find out why Bellwether could be the perfect choice for you. We have insanely competitive interest rates and some excellent customer service to boot.
Have any questions? Want to rant to us about how much better banks are? Want to tell us how much you love credit unions? Want to make cheesy bank/credit union jokes?* Leave us a comment below.
* What do you call an employee on his first day working at a bank? .... the Nutella.
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