What Is The Difference Between Banks And Credit Unions

What Is A Credit Union

A credit union is a not-for-profit organization thats traditionally owned by its members. That means the people who open accounts there are both members and owners. That ownership structure gives members the chance to gain more value from the financial institution.

There are rules and regulations governing who can join credit unions, and not everyone is eligible to open an account. For example, a teacher’s credit union might be open to anyone employed at an education institution. Some credit unions restrict membership to those who live or work in a particular county or geographic area of the country.

Different types of credit unions abound. Even if you’re not eligible to join a particular credit union, there’s likely a credit union in your area you can qualify to be a part of.

All About Credit Unions

The big differentiator between banks and credit unions is that credit unions are owned by their members, and that they are generally not run to try and earn a profit. Remember, banks are owned by investors investors who expect a return on their investment in the form of profits. Credit unions, owned by members, forgo the profit motive and instead aim to make banking services and products more affordable for the members.

As such, credit unions generally offer higher interest rates on savings accounts, lower interest on loans, and lower fees for services and products. For many people, thats the most attractive aspect of joining a credit union.

Some of the bigger credit unions in the U.S. include:

• Navy Federal Credit Union
• SchoolsFirst Credit Union
• State Employees Credit Union

How To Join A Credit Union

You can become a member of a credit union in many ways, but each has its own requirements. You may qualify if you live in a certain town or work with an eligible employer. Another option may be through affiliation with certain groups, such as labor unions or schools. You may also qualify if one of your family members is already a member of a particular credit union.

If you don’t meet any of the eligibility requirements, there may still be a chance you can join. Some credit unions allow you to become a member by joining a participating organization. This sometimes comes with a small fee, though the credit union might pay it on your behalf.

For instance, Alliant Credit Union allows you to become a member by joining the charity Foster Care to Success, and Alliant pays the $5 fee on your behalf.

In addition to meeting eligibility requirements, you may be required to pay a one-time membership fee and open an account with a small deposit .

When you’re shopping around for credit union products, you should start with your local credit union, since you’ll likely have better chances of meeting membership eligibility requirements compared to a credit union based outside of your local community. If they don’t have the financial product you’re looking for, you may want to consider other, non-local credit unions that allow anyone to join.

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Chartering Authority Deposit Insurance And Regulatory Examination

Banks, Credit Unions and Savings Institutions operate under federal or state charters. Their deposits, up to $250,000, are insured by one of two federal agencies: the Federal Deposit Insurance Corporation or the National Credit Union Administration . All institutions are subject to periodic regulatory and federal insurance examination.

Are Credit Unions Or Banks Safer

A big concern when choosing between a bank and a credit union is safety. Credit unions, if federally insured, are backed by the NCUSIF, credited by the U.S. government, whereas bank funds are insured by the FDIC .

Both the FDIC and the NCUSIF are able to protect up to $250,000 per depositor under current laws. With funds exceeding said amount, additional accounts at the same institution or at different institutions may be necessary.

Essentially, your money will be safe at either banks or credit unions.

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Interest Rates And Fees

Because banks must turn a profit for their shareholders, youre likely to find higher interest rates for loans and lower interest rates on savings accounts or CDs than offered by their credit union counterparts. However, some online banks offer highly competitive interest rates on high-yield savings accounts.

In general, credit unions offer lower rates for loans and higher interest rates for financial products like CDs and savings accounts. This is because credit unions are owned by their members, so they pass any profits generated on to those members as better interest rates on the credit unions products.

Another result of the credit union business model is that they typically have lower fees. Credit unions are also more likely to disclose all fees associated with products upfront, whereas banks may charge hidden fees.

Types Of Bank Accounts

Depending on your banking experience, you may only be familiar with savings and checking accounts. But banks offer a variety of account types, giving consumers flexibility when saving, spending and investing their money. Here are some of the more common types of bank accounts available.

• Savings account: An interest-bearing deposit account. High-yield savings accounts are savings accounts that earn higher, competitive interest rates.
• Checking account: An everyday spending account, typically accompanied by a debit or ATM card and a checkbook.
• Certificate of deposit : Timed deposit accounts that generally pay higher interest as long as you keep funds in the account for a set period of time, called a term. CD terms can range from one month to five years or longer.
• Money market account: A hybrid bank account that generally combines the earning potential of a savings account with the convenience of a checking account. Many money market accounts come with a debit card and check-writing privileges.

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What Are Thrift Banks And What Do They Do

More importantly, they are savings banks that specialize in real estate. Originally, thrifts only offered savings accounts and time deposits, but over the past 20 years, the banks scope of services has expanded as the needs of the average consumer expanded. They now offer the same products as credit unions and commercial banks.

How are thrift associations different from commercial banks?

Thrifts are savings and loans associations. Thrifts also refers to credit unions and mutual savings banks that provide a variety of saving and loans services. Thrifts differ from commercial banks in that they can borrow money from the Federal Home Loan Bank System, which allows them to pay members higher interest.

Other Factors To Consider

Here are some other things to consider when choosing between a bank and a credit union.

• Are branch and ATM locations convenient?
• Is the bank or credit union part of an ATM network?
• Does it reimburse some or all out-of-network ATM fees?
• Do customer-service hours work with your schedule?
• Check Bankrates reviews to research and compare banks.

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Organizational Status And Ownership

One of the simplest distinctions that can be made between banks and credit unions is their organizational status, also known as their tax status. Banks are considered for-profit businesses, while credit unions are set up as non-profits. Also, banks can be privately owned or publicly traded, while credit unions are member owned. Credit union participants are called members, while bank participants are customers.

Whats The Difference Between Banks And Credit Unions

As mentioned, credit unions are not-for-profit, prioritize their members, and usually require you to buy a share to join. Beyond that, banks and credit unions are very similar, but there are still some key differences. In almost every case, the interest rate on saving accounts is higher at credit unions. Your monthly fees will also typically be much lower compared to banks. Since credit unions focus on their members, customer service is almost always excellent.

While banks are giant corporate entities, theres no denying that they have a few things that credit unions lack. For starters, they typically have a more comprehensive range of credit products available. More specifically, theyll have multiple credit cards that offer great benefits. Banks also have a wide selection of investment and insurance products available, which can be handy if youre trying to keep all your finances under the same umbrella.

Both banks and credit unions will usually offer the same type of accounts such as Chequing, Savings, Tax-Free Savings Account, and Registered Retirement Savings Plan. You can also get a mortgage or line of credit at banks and credit unions.

Although credit unions do have physical locations, there tend to be just a few and are usually limited to within the province where they operate. Compare that to banks where they have locations all over Canada and sometimes in the United States, or even internationally.

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Cd Rates Loans And Mortgages For Credit Unions

When it comes to CD rates, loans and mortgages, credit unions often have the upper hand with lower fees. As of , Pentagon Federal Credit Union has a CD Rate , with a 12-month term resting at 2.25%, while Marcus by Goldman Sach’s 1-year term rate sits at 2.3%.

While not a hard and fast rule, credit unions also tend to have lower fees due to their non-profit, customer-owned nature. Without investors to please and revenue to generate, credit unions can often offer lower fees on standard loans and mortgages.

However, credit unions frequently sell mortgages to third parties after they close, potentially leaving your mortgage in the hands of someone other than your credit union. This means you will be communicating with your mortgage servicer, not your credit union. Yet, according to CUNA’s report, mortgage closing fees for credit unions average about $200 less than banks’, which may compensate for third-party interaction.

Still, in a survey done last year of the nation’s 50 biggest credit unions, “Bankrate found that 84% of credit union checking accounts come with no monthly maintenance fee,” according to Time.

While you may want to save the extra money in mortgages or fees, direct servicing by your bank may be a more comfortable option if you prefer direct communication.

How Do You Join A Credit Union

Joining a credit union is no different from a bank. You just need to provide proper identification to get started. That said, provincial credit unions sometimes have rules about allowing you to join. For example, you usually need to live, work, or attend school in the province where the credit union is located.

Its also worth noting that some credit unions are catered to specific professions such as police officers, teachers, health care workers, etc. Joining a credit union that focuses on your career can be beneficial as theyll have experience working with people in similar situations as you.

Finally, to join a credit union, you usually need to buy a share in the company, which technically makes you an owner. One share will only cost you about $5-$25. Once thats done, youre a member, and you can start using the services offered by the credit union.

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Advantages Of Credit Unions

What Are The Pros And Cons Of Banks

Pros:

• You dont need to be a member to use the bank nor live within a certain geographical location
• More financial products to choose from, such as deposit accounts, investment funds, and credit cards
• Excellent online services and easy-to-use websites and apps
• Digital banks offer no-fee banking

Cons:

• Slightly higher fees compared to credit unions
• The bank is run by a corporate board, so you dont have a say in how the bank runs its operations
• Less of a personal touch if you rely solely on digital services

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What Is The Difference Between A Bank And A Thrift

Thrifts also refer to credit unions and mutual savings banks that provide a variety of savings and loan services. Thrifts differ from commercial banks in that they can borrow money from the Federal Home Loan Bank System, which allows them to pay members higher interest.

What is the purpose of a thrift bank?

A thrift bankalso just called a thriftis a type of financial institution that specializes in offering savings accounts and originating home mortgages for consumers. Thrift banks are also sometimes referred to as Savings and Loan Associations .

What Are The Pros And Cons Of Credit Unions

Pros:

• You can often use ATMs from competing credit unions at no charge
• Lower fees and competitive rates
• More likely to work with people with poor credit
• A human touch and strong customer-service track record

Cons:

• Not as technologically advanced
• Limited product selection compared to banks
• You have to meet eligibility requirements to access the credit unions services and buy a share to join the company

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How To Become A Member At Infirst Fcu

InFirst Federal Credit Union is a community-based credit union that offers checking and savings accounts, realestate, personal, and auto loans, as well as to our members. Visit ourOpen Your Account page to become a member today!

Remember to consider what you want your financial institution to do for you, and remember to trust the organization that you choose!

Are Credit Unions Safer Than Banks

No. Accounts in banks and credit unions are both insured for amounts up to $250,000 via either the Federal Deposit Insurance Corp. for banks or the National Credit Union Administration for credit unions. If you have more than $250,000 to deposit at either a bank or credit union, you should speak to account managers.

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How Credit Unions And Banks Differ

Open an account in a credit union and you’re a member. Do the same with a bank and you’re a customer. The use of these two separate terms member and customer is meaningful. It reflects the substantial differences between these financial institutions in organizational structure and ownership, and ultimately, what consumers care about most fees and interest rates.

The vast majority of banks are for-profit, publicly held corporations whose earnings are distributed to stockholders. Credit unions, on the other hand, are not-for-profit cooperatives owned by members. Earnings are paid back to members in the form of lower service fees, higher interest rates on deposits and lower interest rates on loans.

So whether you’re a saver or borrower, your nearby credit union will probably be more rate competitive than your local bank. In 2014, for example, the average interest rate on member credit cards was 4% lower, their account fees were two times less on deposits of similar size, and their 1-year CDs earned an average of .20% more. 1

When it comes to convenience, banks and credit unions generally are comparable. Banks are known for multiple branch locations, large ATM networks, and online banking. Although relatively smaller in size and breadth, a credit union offers these same benefits by participating in cooperatives that share branch locations and thousands of ATMs worldwide.

See how credit unions compare in fees to a national bank.

Pros And Cons Of Banks And Credit Unions

While credit unions’ ownership structure may seem very appealing, there is no clear “winner” in the bank vs. credit union debate. There are advantages and disadvantages to both.

Because credit unions directly depend on their members, customer service experiences at these institutions tend to be very good. In a 2012 customer satisfaction survey, credit unions received a customer satisfaction score of 82 compared to banks’ overall score of 77. Smaller banks were more likely to receive higher customer satisfaction ratings than big banks, like Bank of America, which scored 66.

In general, credit unions offer higher interest on savings accounts and lower interest rates and fees on loans. However, when dealing with large loans, such as mortgages or auto loans, it is wise to check around for the best rates. Some large banks will compete against credit unions by matching or even beating their interest rates. Independent small lenders that specialize in mortgages are likely to offer better rates than both banks and credit unions but usually end up selling their mortgages to large banks within a month.

Though banks especially large banks are often known for their fees, credit unions have been the ones to increase overdraft fees in recent years. Generally, credit unions have fewer fees, while banks have a number of different fees, but every financial institution is different. Ask for a fee schedule before signing up for any financial account.

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Key Differences Between Credit Unions And Banks

Choosing a financial institution that supports your financial goals isn’t always easy. With over 10,000 credit unions and banks in the U.S.*, picking the one that’s the best fit can seem like a daunting task. While you can quickly narrow your selection by limiting your choices to your state of residence, you might still be left with more than a handful of choices. For example, Vermont has 19 credit unions and 11 banks.

Focusing on the key differences between credit unions and banks might make it easier to decide which one is right for your situation.

1. Credit unions offer lower interest rates.When you need to borrow money for a home or vehicle purchase, securing a low interest rate is just as important as qualifying for the loan. If the rate is too high, you may not be able to comfortably afford the payments. Eligible credit union members receive loans with lower rates, deposit requirements, and fees when compared to other financial institutions.

Each quarter, the National Credit Union Administration compares the national average rates for over 20 common loan and deposit products at banks and credit unions. In nearly every category, credit unions pay members more for deposits and charge less for borrowing.

Unlike bank customers, who participate in a simple transactional relationship, credit union members have the power to influence the institution’s future.

3. Credit unions share profits with members.

4.Banks don’t share profits with customers.