Banking

Source: www.GotCredit.com via Flickr.

There are some obvious differences between doing your banking at a credit union as opposed to a traditional bank, and each option has its own pros and cons. For example, credit unions tend to pay higher interest rates on deposit accounts, but usually can't match the convenience and features of big banks. We asked three of our contributing writers to share their preferences. Here's what they had to say:

Selena Maranjian: When it comes to interest rates, which are a rather critical factor in our banking needs, credit unions have the advantage. Of course, not every credit union will top every bank, but as credit unions are not out to make big profits, as most banks are, it shouldn't be surprising that they will typically offer you the better rates -- higher, when you're looking to save money, and lower, when you're looking to borrow.

The table below offers some examples of national average rates as of June 26, 2015. This data comes from the National Credit Union Administration, but as the NCUA notes, "SNL Financial, an independent company that tracks interest rates and terms at financial institutions nationwide, is the source of the data for these charts."

Product

National Average, Banks

National Average, Credit Unions

1-year CD, $10,000

0.36%

0.44%

5-year CD, $10,000

1.20%

1.44%

Money market account, $2,500

0.12%

0.16%

Regular savings account

0.12%

0.13%

Credit card, classic

12.71%

11.64%

30-year fixed-rate mortgage

4.07%

4.11%

5/1 year adjustable-rate mortgage

3.49%

3.23%

Home equity loan, 5-year, 80%

5.04%

4.44%

New car loan, 48 months

4.67%

2.58%

Indeed, of all 23 products reviewed, credit unions had the better interest rate in 22. The only exception was for 15-year fixed-rate mortgages, where banks and credit unions were tied. The differences were starkest among loan rates for new and used cars, with bank rates close to twice as high as those of credit unions.

Over long periods, small interest rate differences can add up, saving you hundreds or even thousands of dollars. That's an excellent reason to consider doing business with credit unions.

Matt Frankel: Selena is absolutely correct that you're likely to find a lower interest rate on certain types of loans, as well as better rates on deposit products such as savings accounts and CDs. However, there are a few reasons big banks could be a better choice for consumers.

First of all, I'd be willing to say that most consumers don't really care about the higher savings interest rates. After all, who actually relies on savings interest for income these days? However, I do concede that this could become a bigger drawback to banks once rates rise.

Second, because the banks charge more on loans and pay out less interest, they tend to have more resources to invest in developing the latest banking technologies. Many credit unions have mobile banking apps, but for the most part these have just basic functionality. In contrast, big banks have the ability to develop and offer some pretty useful features.

For example, U.S. Bank offers Photo Bill Pay, which allows users to pay a paper bill from their account by simply taking a picture of it. Citibank's mobile app is smartwatch-compatible. And, Bank of America's mobile app allows users to make appointments in a branch directly through the app, and allows for fingerprint login for an extra layer of security.

Finally, the convenience of big banks is tough to beat. Many of the big banks offer branch hours on nights and weekends, as well as vast ATM networks that even the best credit unions can't match. So, while credit unions certainly have their strong points, I prefer the convenience and superior functionality of my big-bank checking account.

Dan Caplinger: Both Matt and Selena make good points in favor of banks and credit unions, but there's no reason why you have to settle for one over the other. To take advantage of the respective benefits of banks and credit unions, it's relatively simple to open two accounts, one at a bank and one at a credit union.

It's true that by having two accounts open, you might need to deal with some added complexity in your finances, such as making sure that you maintain any required minimum balance to avoid fees in each account and balancing two sets of accounts. Yet in many situations, you can easily park the bulk of your money in the account that pays higher interest, while taking advantage of whichever institution offers cheaper loans or gives you the ancillary services you want.

Which one you'll end up doing more business with depends on your particular needs, and if it turns out that you rarely or never use one, then you can always close the account. Sometimes, though, it pays to try both out and see which ends up turning out to be the more valuable for you from a financial as well as a customer service perspective.

Dan Caplinger has no position in any stocks mentioned. Matthew Frankel owns shares of Bank of America. Selena Maranjian has no position in any stocks mentioned. The Motley Fool recommends Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.