If you have never had the opportunity to use a credit union, or even if you have, you may not be familiar with the various differences a credit union offers as compared to a bank. While both banks and credit unions are financial institutions that offer similar services, each institution features different benefits for account holders as well as borrowers. Understanding the differences between credit unions and banks can help you determine which one is best for your financial needs.
Credit Unions: An Overview
A credit union is considered a cooperative financial institution. It is cooperative in the fact that the individuals who belong to the union pool their money to provide loans and other financial services to the other members. Credit unions are considered nonprofit entities that promote fair dealing through the cooperative structure. Generally, credit unions have certain qualification criteria within which members must fall to be able to join the institution’s body of members.
The Benefits
In essence, credit unions are designed to meet the specific needs of their members because they are designed for or tailored to the specific members who create the institution. Additionally, every member of a credit union typically has a “voting share” in the credit union’s affairs. This practice guarantees that the organizations practices really do meet the needs of what members actually want. As far as services provided, credit unions offer the same services as banks and are also responsible for abiding by federal regulations; however, these institutions are often able to offer higher interest rates and lower fees because of their democratic structure.
Banks: An Overview
Generally speaking, the main difference between credit unions and banks is ownership. Where credit unions are funded by one-time membership fees in a nonprofit structure, banks are typically corporate owned. As such, many banks or the organizational entities behind banks are interested in the bottom line. However, banks are not necessarily just about the fees and rates. Banks are typically much larger than credit unions, a factor which allows them to offer a much larger variety of financial options and services.
The Benefits
Typically, banks are able to provide account holders and borrowers many more options when it comes to loans and even accounts. Plus, larger or more mainstream banks provide such services as online banking and investment options. However, the size of larger banks often means that customer services may be taxed under a larger membership basis rather than the more individual, personal focus smaller credit unions can take.
Choosing a Credit Union or a Bank
While both financial institutions have their pros and cons, the decision to choose a credit union versus a bank, or vice versa, is strictly personally. It really just depends on what you are looking for in a financial institution. If you are looking for a loan or want to purchase a Certificate of Deposit, you will likely want to shop around and keep credit unions in mind. Individuals with fairly straightforward investment goals will likely be well-served via a local credit union whereas an individual with a more high-profile portfolio may require the strength and flexibility a larger bank can provide.
