Credit Unions vs. Banks: Which One is Better?
Here we identify and compare the key differences between credit unions and banks in terms of rates, convenience, and products, and financial services provided.
Banks: An Overview
Banks are owned by corporations and investors, and they exist for one goal: to profit. According to Statista, there were 4,519 FDIC-insured commercial banks in the United States as of 2019.
Anyone can open accounts in all banks granting they have good banking history. These bank consumers may be individuals or organizations and both share the same benefits.
Banks: the Advantages
For people starting to gain more control of their finances, banks are easier and more accessible. This is because banks accept everyone and treat them as customers.
Banks have more physical branches and ATM networks which are easily accessible in every city and every state, wherever you are. Most banks also have online or SMS/mobile banking for added convenience which makes banking available 24/7. Online banks make it easier to manage your personal finances with just a few clicks. Banks are more technologically advanced compared to credit unions as they often have the budget for this. All banks offer credit cards to their customers, unlike credit unions.
What are the Disadvantages of a Bank?
Since banks are profit institutions, loans have higher interest rates. For savings and deposit accounts, banks also offer lower interest rates making money gain slower over a period of time. Although there are banks offering zero maintaining balance, the fees are much higher. Rates on loans and other financial products offered by banks are also higher.
What is a Credit Union?
Credit unions are established not to gain profit and are owned by their members. About 120 million Americans are members of one according to the National Credit Union Administration. The goal of a credit union is to teach its members how to gain more control of their finances. Moreover, each member has a say in the policies and choosing the right leaders on every credit union.
What are the Advantages of Credit Unions?
The goal of every credit union is not to profit, so fees are lower compared to banks. Credit unions also offer lower interest rates to their loan products (personal loans, auto loans, business loans) and higher savings account rates. Being a member of a credit union may be a wiser choice for people opting to make their savings grow faster while enjoying lower loan rates.
Members of the credit union can express themselves more freely as they have the right to do so. They have the ability to vote on credit union policies and participate in decisions that customers of a bank cannot do. Since they are non-profit, credit unions have better customer service and more member-focused.
What are the Disadvantages of Credit Unions?
Entering a credit union might be a little difficult when you compare it to banks as they have more requirements. Incoming members of credit unions may be required to attend an orientation before becoming full-fledged members, which banks typically don't do.
Credit unions offer limited loans and savings products to their members since they are smaller than banks. They often don't have the budget for technology, so members have limited to no access to online banking in credit unions. This is a downside of credit unions if you want the convenience online banks typically offer.
Credit unions don't typically offer credit cards and rewards to their members compared to bank account holders.
How Banks and Credit Unions are Similar?
Both banks and credit unions offer a variety of financial products such as direct deposit savings accounts, personal and auto loans and others. Bank and credit union membership has perks and benefits to a customer or a member's personal finance. The government and the National Credit Union Administration regulate them and are both secured. Credit unions and banks both offer insurance to their account holders and members.
Credit Unions Vs. Banks: Which is Best for Investing?
Both financial institutions offer good investment products and there are perks to each. Credit unions are always customer-driven and can potentially offer better deals to their members. Members can enjoy better loan products, higher direct deposit, and savings rates because there are no outside investors aimed to profit.
On the other hand, banks offer rewards programs that are better than what credit unions have. Customers often consider this in opening a new savings account and getting credit cards. Bank account holders can earn rewards which can be cashbacks, convertible points, and even sign-up bonuses which credit unions typically don't have. It is important to consider these factors in choosing the best match for you.
Credit Unions Vs. Banks: Which one is the best for you?
Now that we have laid out the pros and cons of banks and credit unions, which one is actually better for you? It is best to note that banks treat you as customers while credit unions treat you as members.
If you want to have more loans, savings, and credit card options, the bank is the one for you. If you are someone on the go, the convenience of mobile and online banks is definitely a plus and often a life-saver. For those people who want lower interest rates on loans and higher rates on savings, the credit union is the perfect match. If you want to freely express yourself as a member, the credit union is also for you.
The Result: Credit Union or Bank?
Overall, both banks and credit unions have unique perks based on what is more important to you. They are equally useful and beneficial depending on how you use them. One should take into consideration the factors we stated earlier to help in choosing the best option between the two. The following are the best things you can find in both credit unions and banks:
- Customer service is better at credit unions as they are more focused on members rather than profit.
- Credit unions offer lower interest rates on loans and higher savings rates which means you gain more money.
- For people opting for convenience, banks are better since they more branches and ATMs on most cities and typically offer online banking.
- Banks offer better rewards and cashbacks to their account holders when you compare them to credit unions.
Do you still have trouble in which financial institution do you put your money in? Book a free consultation today with our certified advisors here at CreditPlanned.