If you’re like most people, you know that keeping your money in a checking or savings account is the best way to keep it safe. But where should you open one? Banks and credit unions can help you manage your money while providing high-quality services to help you grow your wealth, but they do so in different ways. Before opening an account, you need to understand how banks and credit unions work and what you can expect from each type of financial institution. Here’s what you need to know.
How Banks and Credit Unions Work
On the surface, banks and credit unions seem incredibly similar. They both let you open checking and savings accounts. They offer different financial products to help you grow your savings or invest in your well-being. But they work in different ways.
Banks
Banks are larger organizations, often serving entire states. They operate as a for-profit business and are answerable to shareholders and investors for every decision they make. This means their services are tailored to generating profits rather than looking out for the well-being of their customers. Most banks can offer the following types of services:
- Checking accounts
- Savings accounts
- High-yield savings accounts
- Loan products
- Investment advising
Keep in mind that the services available will vary from bank to bank.
Credit Unions
Credit unions, on the other hand, are not-for-profit financial institutions. Each adult with a checking or savings account at a credit union is considered a member-owner of that credit union. Members are entitled to a say in how the credit union is run and the types of products or financial decisions the credit union makes. There are no shareholders or investors involved.
Additionally, credit unions typically serve smaller areas. They may have branches in several communities but rarely cover the same larger territories that traditional banks will.
Credit unions are typically able to provide services including the following:
- Checking accounts
- Savings accounts
- Loan products
- High-yield savings accounts
The exact services available will vary from credit union to credit union. If you’re looking for a specific type of service, check with each credit union that could work for you.
The Differences Between Banks vs. Credit Unions
So, how exactly do banks differ from credit unions? There’s more to it than their business structure.
Their Customers
Banks have customers, while credit unions have members. This may sound like a minor distinction, but it’s important to keep in mind. Banks tend to treat their customers as little more than an account number. As a result, customer service can be lackluster and impersonal. Credit unions see their members as individuals and are better positioned to provide them with a better experience each time they visit their neighborhood branch.
Their Interest Rates
Banks are in the business of earning money for their shareholders, and this greatly influences the interest rates they offer on savings products and loans. Rates on savings accounts tend to be lower, and rates on loans tend to be higher so they can pass on more profits to their shareholders and improve the bank’s bottom line.
Credit unions are often able to offer lower interest rates on loans and higher interest rates on savings accounts because they’re not answerable to shareholders. They pass the profits directly to their member-owners.
The Fees They Charge
Banks are more likely to charge fees for your accounts. These fees could come in the form of maintenance fees for your accounts or for dropping below a minimum balance requirement. Oftentimes, those fees will be higher than what you’d pay at a credit union if you have to pay them at all.
Credit unions typically avoid charging you maintenance fees on your accounts, saving you money each month.
The Technology They Use
Since banks are larger and tend to have more resources, they can invest in more advanced technology at their branches. Their websites, online banking platforms, and mobile apps are often more polished and have more features.
Credit unions must work with fewer resources and, as a result, often have websites and mobile banking apps that aren’t as feature-rich or easy to use.
The Pros and Cons of Using Banks
If you’re considering opening a savings or checking account with a bank, you’ll want to familiarize yourself with the pros and cons of these financial institutions.
Pros
- Banks have more locations and may have branches more conveniently located to your home, work, or school.
- You can choose between national banks with availability in most states or local banks that serve smaller regions.
- Banks have access to the latest technology and often develop mobile apps and websites that allow you to take care of your finances on the go.
Cons
- Banks tend to offer lower interest rates on savings accounts, so your money may not grow as quickly.
- The sheer size of their client base often means you receive less personalized service every time you visit.
- Their accounts can have high minimum balance requirements and maintenance fees.
The Pros and Cons of Credit Unions
Here are the benefits and downsides you may experience when choosing a credit union over a bank.
Pros
- Credit unions are often able to offer higher interest rates on savings accounts and lower interest rates on loans compared to most banks.
- You may receive more personalized customer service whenever you visit a neighborhood branch.
- Your money is protected by the National Credit Union Administration (NCUA), giving you the same level of protection you’d find at FDIC-insured banks.
- You’ll have access to thousands of surcharge-free ATMs through the Co-Op Shared Branch Network across the country.
Cons
- Credit unions may not have the most up-to-date mobile or online banking apps.
- There may be fewer branches in your area, making it harder to find a convenient branch to visit when you need in-person assistance.
- Some credit unions may not offer as many financial products as large banks.
Which Is Right for You?
Both banks and credit unions will help you manage your money. Before you decide, think about the features you need. If you want a large bank with the most updated online banking experience and tons of locations throughout the country, a bank may be a better choice. But a credit union will be a better fit if you’re looking for personalized service, want to maximize your savings and support a financial institution that makes a difference in your community. Once you open an account at a local credit union, you’ll be able to experience the credit union difference firsthand.
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