Everyone at some time or another must deal with a financial institution to manage his or her money. Both banks and credit unions are important parts of the financial services industry; however, they differ in their approach to banking. Learn how to evaluate the pros and the cons of financial institutions and make an informed choice when looking for the money management tools that will work best for you.
How are banks and credit unions alike? Both banks and credit unions offer financial services to the public. Both banks and credit unions offer savings accounts, checking accounts, loans and other financial products. From the individual’s perspective, banking at either type of financial institution is very similar, according to the U.S. Small Business Administration. Both banks and credit unions federally insure the funds in bank accounts to $250,000, and the coverage is permanent — regardless of what happens economically. Both institutions have a managing board of directors that oversee business.
How are banks and credit unions different? The core philosophy is what sets the two types of financial institutions apart. Banks consider you are a consumer. But with a credit union, everyone who banks there actually owns the credit union. All customers are both members and owners, and each member has an equal voice — regardless of the amount of money that he or she has on deposit, states the Credit Union National Association (NCUA). During tough economic times, it is not uncommon for credit union business to increase. The popularity of credit unions is on the rise, even though most financial business is done at standard banks.
Banks at a glance.
- Banks have stockholders.
- Banks are for-profit institutions looking to make money for the stockholders.
- You must buy stock to be considered an owner of a bank.
- Board of directors are elected, paid and legally bound to get profit for the stockholders.
- A bank's philosophy is to benefit the bank and stockholders directly — not the customers.
- Banks generate the profit via fees, hidden penalties and high interest rates on loans.
- Banks pay federal income taxes, which transfers to higher cost per consumer.
- Anyone can qualify to use a traditional bank.
- Banks are usually larger institutions and thus may offer a wider range of financial products and services than a credit union.
- The FDIC insures the money you have on deposit up to $250,000.
- Banks generally have broad access to branches and ATMs (for a fee).
- Banks offer benefits to higher deposit amount customers.
- Customer service is highly available, though less personal.
Credit unions at a glance.
- Credit unions have members, not consumers.
- Credit unions are not-for-profit institutions benefiting members.
- Higher interest savings rates are offered.
- Credit unions elect a volunteer, unpaid Board of Directors that oversees success of each member.
- The Board of Directors is elected each year and every member gets one vote.
- Credit unions promote saving money and managing money wisely.
- Credit unions are exempt, by the U.S. Congress, from paying federal income taxes because credit unions are member-owned, democratically operated, and not-for -profit institutions meeting the credit and savings needs of all people, particularly those of modest income.
- Membership in a credit union requires eligibility. By current federal statute, credit unions cannot serve the general public. People qualify for a credit union membership through their employer, organizational affiliations like churches or social groups, or a community-chartered credit union. Almost everyone can qualify for membership.
- The NCUA (backed by the full faith and credit of the U.S. government) insures the money you have on deposit up to $250,000.
- Credit unions may have limited branch and ATM access.
- Credit unions offer equal benefit to all members regardless of amount on deposit.
- Customer service availability is not always 24 hours a day.