Credit Unions vs. Banks
What is the difference between a credit union and a bank? Banks are for-profit, meaning they are either privately owned or publicly traded, while credit unions are nonprofit institutions whose members are shareholders. This means that members generally get lower rates on loans, pay fewer (and lower) fees, and earn higher annual percentage yields on savings products than bank customers do.
If you’re tired of shelling out money to pay fees at the ATM or for your savings or checking account, then it may be time to hunt for a new bank. If that’s the case, don’t forget to consider credit unions. They tend to offer higher rates of return on savings accounts and lower interest rates on loans. They’re also an increasingly popular choice among former bank customers interested in exploring their options. According to a January 2019 report from the Credit Union National Association, more than 118 million Americans currently use about 5,700 credit unions in the country. [CC1]
Still, confusion over credit unions persists. Many people wrongly believe that they must belong to the military or work for the government to join a credit union, or that their savings will not be insured the same way it is in bank savings accounts. But these notions are untrue.
Are you one of millions of Americans who have money in a bank checking or savings account but can’t get a loan at that bank? Are you allowed to deposit your money, but not benefit from the bank’s programs? If you’ve thought about searching for a new option, I am asking you to think about a credit union.
Federally insured credit unions hold $1.45 trillion in assets and have about 30,000 ATMs spread across the country. They tend to be much smaller than banks, which can lead to a more personal touch: The average bank is about double the size of a credit union. Unlike banks, they are nonprofits governed by their members, many of whom volunteer to serve as board or committee members or in other roles.
A credit union is very much like a bank and offers many of the same services. For example, you can get a checking account with a debit card and a savings account. You can also invest in CDs and an IRA, or get loans for cars, mortgages, home equity, credit cards, and other financial needs through a credit union.
Pros of credit unions:
· Less-rigid eligibility requirements
· Lower interest rates
· Deposits are insured in the same way as banks
· Greater financial literacy resources
Cons of credit unions:
· Limited financial product offerings
· Fewer physical branches
Pros of banks:
· Resourceful online apps, tools, and features
· International banking support
Cons of banks:
· Stringent eligibility requirements
· Higher interest rates and transaction fees
· Potential for discrimination
· Emphasis on big business over small business and entrepreneurs
· Women may be charged higher rates for loans or services
· Overdraft fees may be inconsistently applied—some customers may be allowed to use the bank’s money on a short-term basis without costs or fees experienced by other customers
· Banks may put a hold on deposits in some areas and not others
Credit union membership usually is related to the idea of belonging to a community, such as a workplace, region, or church. What would you think about a credit union for Muslims and other people who desire ethical banking practices? Could it gain your support?
Graceline Family strives to avoid or minimize usury. On average, credit unions offer lower rates on loans and higher rates on savings accounts—exactly what consumers want. The National Credit Union Administration (NCUA) reported in December 2018 that 5-year loans for new cars at banks carried an average interest rate of 5.04%, compared with 3.57% for credit unions.
Credit unions are insured by the federal NCUA, which provides the same protections that the Federal Deposit Insurance Corporation applies to banks—insurance coverage on deposits up to $250,000. NCUA’s website allows credit union members to check on their insurance coverage. The agency also recommends checking for a prominently displayed sign at the credit union indicating NCUA coverage, which protects members. According to NCUA guidelines, if a federally insured credit union fails, members typically receive payments for their deposits within three days.
Everyone can benefit from increased financial literacy resources. Credit unions pride themselves on being a top source for financial information. Many offer seminars and information on topics such as preventing identity theft and managing credit cards. Just like banks, the websites of credit unions often contain articles, tools, and other resources for educating members about making smarter financial choices as well as managing money online or getting questions answered.
Finally, many consumers say credit unions offer a human touch that many banks can’t match.