There are a number of big choices to make when looking for a new savings or checking account, but the first choice is whether to use a credit union or a bank. They both have their pluses and minuses, and determining which one is best for you is a simple case of weighing up these pros and cons based on your situation and your needs.
What is the Difference Between a Credit Union and a Bank?
The main difference is that a credit union is a not-for-profit while a bank is not. To simplify it: a bank is there to make money for its shareholders, a credit union is there to make money for its members.
Keep reading to understand what specific benefits you can get from a credit union and not a bank, and vice versa.
The Benefits of a Credit Union
A credit union serves its community. That community may be the actual community in which it is based (as is the case with credit unions limited to geographical areas) or a community of people who are linked because of their employer, their faith or simply their membership.
It serves this community by offering the best financial services that it can and it funds these services by placing all profits back into the business. A credit union offers:
- Higher interest rates on savings accounts
- Reduced loan rates
- More personable customer service
- Lower fees
The Benefits of a Bank
A bank is a colossal financial installation that may be national or international. It has more money, more power, and more access to better technology which can then be used to increase access and security.
Banks offer the following benefits over credit unions:
- Access to brick-and-mortar locations nationwide
- Access to more ATM machines
- Better access to new technology (including apps)
Both a bank and a credit union make money for a select group of money to benefit from. The difference is that while a bank makes a lot of money for a small number of people (the shareholders) a credit union makes a little money for a lot of people. Also, while 99% of people with bank accounts are customers whose money benefits others, 100% of people with credit union accounts are also members whose membership benefits themselves and others.
Generally, while a credit union has more of an inclusive, community feel, a bank is a mega corporation that has the power to do more. It’s like comparing a local co-op store or Mom & Pop store to a chain like Walmart. And just like those retailer stores there will be people who prefer one and people who prefer the other.
Both a bank and a credit union offers:
- Protection of up to $250,000 per account provided by the FDIC
- A range of services
- Options for debtors who cannot pay
- Multiple ways to manage your finances
Are Credit Unions NonProfits or Not-For-Profits?
There is some confusion regarding the difference between a nonprofit and a not-for-profit and you can find credit unions being referred to as “nonprofit” on several sites. In fact, the biggest financial advice site on the web (we’re not naming names) lists credit unions as nonprofits.
This is simply not true, although in truth it’s all a matter of semantics. A nonprofit is basically a charity, something that exists for the sole purpose of promoting a cause, whether that cause be to increase the scope of artistic and creative projects in a specific region, or to give money to those in need overseas.
A not-for-profit, however, is an organization that uses profits to fulfill objectives promised to members. Basically, a credit union is a not-for-profit because it uses the money to grow the union and to benefit its members financially.
Should I Choose a Credit Union or Bank?
There is no clear and obvious solution, nor is there a “better” option. The credit union vs bank debate is a personal one and will depend on your circumstances, your needs and your preferences.
If, for instance, you want a reward card that earns money every time you spend and brand new technology to make your spending quicker and easier, then you may be better off with a bank. If you're looking for a savings account that pays a higher interest rate or a loan that has a low interest rate, then credit union may be the better option.
It’s important to look at what you need and to compare what these two services can offer you. Someone who places an importance on attentive, helpful customer service is going to be more inclined to opt for a credit union than someone who can’t remember the last time they actually phoned a customer support line and doesn’t particularly care about the lack of personable support.
Your location will also be important because where you live will determine what banks you have access to and what credit unions you can join. If your only option is a credit union that is too small to offer anything good, then you may decide that a bank is better. If, however, the banks that are offering the best rates have no branches anywhere near you, then that credit union will start to look a lot more appealing.
More Info on Credit Unions vs Banks
To find out which option is the best for you based on individual offers, take a look at the following articles here on DebtReviews:
- No Credit Loans: We look at some of the best loans offered by credit unions and other alternative financial corporations.
- Best Premium Credit Cards: If you have a lot of money then banks begin to open doors for you and you can get some amazingly generous credit cards, as this guide shows.
- Student Credit Cards: There are some great options here for students who need some money quick.
- Types of Loan: We look at the many types of loans currently available, including those offered by both banks and credit unions. This guide also covers mortgages, payday loans, and more.