How Credit Unions Are Different From Banks
Date: September 9, 2016
Credit unions and banks offer many of the same financial services, but banks are often large corporations while credit unions usually offer a more personal touch and typically have smaller customer bases and networks. Many people mistakenly believe that bank deposits are protected, but credit union accounts aren't. This isn't the case. Although the Federal Deposit Insurance Corporation (FDIC) protects only bank deposits, the National Credit Union Administration (NCUA) offers similar protection for credit union deposits. See what else differentiates these two financial entities to see where you should be saving your money.
Banks issue loans to anyone who the bank expects to be able to repay the debt based on a range of factors including credit score, income and how much other debt the person carries. You must meet eligibility requirements before you're even considered for borrowing money or opening an account with a credit union. These eligibility requirements vary for different credit unions and they may require that you work in a certain profession or live in a certain area. It might take a little research, but most people can find a credit union they are eligible to join.
Interest Rates and Charges
Credit unions are known for offering better terms on savings accounts and loans for members, but you should still comparison shop to ensure that you're getting the best deal. The biggest savings for credit union members comes when they're taking out car loans, according to a study by SNL Financial. Interest rates on these loans were between 2 and 2.5 percent lower than those banks offered in 2014. Credit card interest rates were about 1.4 percent lower. The same study found mortgage rates were virtually the same at banks and credit unions.
Banks are for-profit companies that have shareholders who invest in the bank and expect to make money on their investments. The profits of the company benefit the shareholders at the end of the year, typically through dividends paid out. Credit unions are non-profit entities owned by the members — the same people who deposit money and take out loans. There are no separate owners who expect to make profits on their investments. The members of a credit union vote to elect a board to oversee operations, and profits are paid out to the members.
Size and Service
Banks typically offer much larger ATM networks and more branch locations. You might find that your credit union won't be able to help you if you travel overseas. However, many credit unions have come together to combine their networks to offer comparable free ATMs within the U.S. Credit unions also pride themselves on offering superior customer service, financial education and catering to small business needs.