Ever wondered how banks and credit unions are different from each other? Both offer similar products, they operate under similar agencies and laws, and they’re both equally safe sources of funds. In that case, how are they different, and how do their differences actually matter to you? Before you find out the answer to these questions, it’s important to first understand what banks and credit unions primarily are.
What is a bank?
‘Bank’ refers to a financial institution that is licensed to take deposits from the public and make loans. However, banks also provide financial services such as currency exchange, safe deposit boxes, and wealth management.
What are credit unions?
Credit unions are also financial institutions, but they are owned by their own members. In addition, like banks they accept deposits, make loans, and provide a whole range of financial services.
How Banks and Credit Unions Differ From Each Other
Both banks and credit unions offer checking and savings accounts, business accounts, and provide loans. In fact, they are practically equivalent for most banking needs. However, they are not the same. There are some primary differences that you should be aware of.
|Banks are for-profit institutions.
|Credit Unions are nonprofit institutions.
|They may be privately owned or traded publicly.
|Owned by members. All members of a credit union are its part owners.
|Commercial banks work for profits. They make these profits by accepting deposits from people and making loans using this money for higher interest rates.
|Credit unions operate for the well-being of its members. Profits are returned to members in the form of reduced fees and better interest rates.
|Banks do not require you to be a member to avail products and services.
|You have to be a member of a credit union to avail its financial services and products.
|Characterized by higher fees, lower interest rates on deposits, higher interest rates on loan products and credit cards.
|Characterized by lower fees, higher interest rates on deposits, lower interest rates on loan products and credit cards.
|More convenience in terms of location, more branches across the country, more technological efficiency, and better mobile access.
|Involve customer-focused banking. However, inconvenient in terms of fewer locations, and some credit unions do not keep up with the latest in banking technology.
Both banks and credit unions have their pros and cons. To decide which one works for you, you need to prioritize the aspects essential for your banking and investment needs. For instance, is the convenience of the banking app more important to you than customer service, or does the location of a branch rank higher on your list than the interest rates offered? Answer these questions and do your research to ensure you make the right choice for your needs!