Banks vs Credit Unions: The Differences That Matter to You

Banks and credit unions are two common types of financial service providers. Both insure the deposits of customers whether through the FDIC or NCUA. While banks are businesses owned by shareholders, credit unions are not for profit institutions owned by the customers themselves. There can also be a fairly substantial size difference between the two institutions. These key differences have numerous implications for consumers.

Key Differences: Banks vs Credit Unions

Feature

Credit UnionBank
Interest rates + Fees
  • Higher savings interest rates
  • Lower loans interest rates
  • Lower minimum balance requirements to open accounts
  • More high-interest options for large-deposit accounts
Convenience
  • Limited ATM/branch locations (sometimes made-up for through partnerships)
  • more branch locations
  • Stronger online & Mobile banking
Customer Service
  • More localized
  • Better online support
Eligibility
  • Limited fields of membership
  • Anyone who can meet balance requirements

The Advantages of Credit Unions Over Banks

A lot of the benefits that come from credit unions are attributable to their smaller size. Because they have fewer customers, they can typically offer better deals to their clients. However, customers may find that larger credit unions operate and are fairly similar to banks. When you have a more personal relationship with your financial institution they may be more lenient with you and more willing to offer you better deals.

  • Interest Rates and Fees: Credit unions are not for profit organizations that are owned by its members. This means members are entitled to participate in the election process to select board members.This also theoretically means there are no outside owners interfering with the credit union’s operations. Furthermore, additional earnings are generally funneled back towards consumers in the form of interest rates. The interest rates offered on member’s deposits are generally higher than the national average and the interest rates on loans are usually lower as well. Furthermore, credit unions typically have more generous fee schedules and have lower minimum balance requirements to waive these fees.
  • Convenience: One of the biggest drawbacks of credit unions is their higher degree of scarcity in terms of ATMs and locations as compared to major banks. However, many credit unions are a part of a co-op system that shares ATMs and branches. Customers will not be charged any non native operating fees if they go to these participating locations. That being said, not all credit unions will belong to this network and if a customer performed transactions at non-native locations, they would likely incur additional charges. Some credit unions will offer non native ATM fee reimbursements if customers meet certain requirements. For example, Navy Federal Credit Union will waive ATM fees for active duty customers.
  • Customer Service: Credit unions, especially smaller and more community oriented ones, generally have more human based customer service. Due to their smaller size, customers can have the opportunity to develop more personal relationships with their credit unions.
  • Eligibility: Not everyone can join a credit union as they have limited fields of membership. Some of their criteria can include specific geographic areas, employee groups, or certain affiliations. However, it has become increasingly easy to join credit unions.

The Advantages of Banks over Credit Unions

With their larger size and abundance of locations, banks generally offer unparalleled convenience and a one stop shop for a wider range of diverse service offerings. However, because banks also have a much wider customer base, individual customers will generally have a less personal relationship with the financial service provider and may also receive less competitive rates and deals on their products.

  • Interest Rates and Fees: It is true that larger banks generally have lower interest rates on deposits and higher interest rates on loans than credit unions. However, banks typically make up for these less competitive fees and rates by offering a greater scope of products and more variations of each product type. For individuals with higher levels of savings, banks often have specialized tier interest rates that are above national averages.
  • Convenience: Banks are typically larger than the average credit union meaning they have locations pretty much anywhere. This means that its customers will almost always be able to locate a native location and generally do not have to worry about any non native fees. Even so, some of the more specialized accounts will still offer customer’s ATM fee reimbursements as well. Furthermore, because banks have larger budgets for spending, they generally have developed stronger mobile apps and other platforms for online banking. Additionally, many banks are international and span the globe. This makes it much easier for customers to set up new accounts should they relocate overseas.
  • Customer Service: Customers typically encounter more automation when trying to obtain help with various issues. This is especially the case for phone calls. However, banks also typically have stronger online software for customer support. Additionally, while branches may be larger and be a little more impersonal, customers can still develop close relationships with their local branches. Many banks are still willing to make adjustments for their customers. For example, it is fairly common for banks to increase ATM withdrawal limits for long term customers who request this service.
  • Eligibility: Anyone can open an account with a bank so long as they meet minimum deposit requirements. Some banks even offer specialized accounts specifically geared for customers that would not even normally qualify for accounts.

Should You Deposit Money With a Bank or Credit Union?

Ultimately, most consumers will be better off by first understanding what they want out of their financial institution. If both a credit union and a bank offer the same product, compare rates and fees between the two given your financial situation. Make your decision based off that.

Keep in mind that though credit unions are supposedly customer focused, some may operate more similarly to large banks, but with the caveat that they receive tax break. On the other hand, while large banks may have shareholders, this does not necessarily mean customers will suffer. Also, some smaller community and regional banks may very well function much like credit unions, from a customer point-of-view. As a customer, it is important to evaluate your own personal needs and not to let the experiences of other people color your impressions of various financial institutions.

Some customers may opt to open accounts at both credit unions and banks alike. All in all, both types of financial institutions will be a safe place for customers to store their money and the decision of credit union versus bank all boils down to individual preference and need.

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