by Christy Bieber | April 29, 2019
It's important to have a financial institution you can trust to bank with. You need to have a place to park your cash, as well as a trustworthy provider of mortgages, personal loans, and other financing needs.
When it comes to picking a financial institution, many people default to a local bank. After all, there are tons of banks out there, both big and small, and they offer all different kinds of financial services. But banks aren't your only option -- you could also opt to join a credit union.
Credit unions offer many of the same services as banks, but they are nonprofit organizations that are owned by their member customers. A bank, on the other hand, generally exists to make a profit for its owners, whether it's a private company or a publicly traded company with millions of shareholders. These differences in ownership lead to differences in how banks and credit unions are run.
It's important to understand these differences if you're thinking about joining a credit union. There are pros and cons, and this guide will help you to decide whether a credit union is right for you.
One of the biggest differences between banks and credit unions is that credit unions require membership. And many have stringent membership criteria. For example, you may need to be a graduate of a certain school, live in a particular area, be a member of a professional organization or union, or otherwise meet specific requirements to join a credit union.
There are some credit unions that are easier to join. But even many of the credit unions with more relaxed membership requirements will mandate that you pay a fee or donate to a charity to join them.
Banks don't have these requirements. Pretty much anyone can become a bank customer, unless they've had lots of problems with banking relationships in the past. As a result, it's often much easier to just select a bank and start doing business with them than to find a credit union with membership requirements you're able and willing to fulfill.
Credit unions are often local organizations, and they tend to be smaller than most banks. This is one of the things that makes them attractive to some savers. Doing your banking with a small local credit union can mean getting better customer service, better terms on loans, and/or lower-cost accounts.
But it also means you may not have as many physical branches to go to as a big bank would offer -- and you may have no branches around at all when you travel outside your immediate area.
If convenience is your top criterion and you want tons of branches and ATMs anywhere you go, then you're likely better off with a big national bank. If you prioritize personalized service and a small-company feel over this convenience, then you may decide to opt for a credit union instead.
Because credit unions exist to cater to members, they are often more willing to make loans and provide access to other financial products with less stringent eligibility requirements. The rates on loans and the fees on accounts may also be lower, because credit unions aren't trying to make a profit.
This isn't to say that there aren't some banks that offer better loan terms, low or no fee checking accounts, and savings accounts with decent interest rates. You just may need to shop around a little more to find a bank that offers the same affordable financial products as most credit unions do.
In most cases, banks offer a wider array of financial products than credit unions do. If you want to get all of your banking and borrowing products (checking accounts, loans, credit cards, etc.) from one institution, then a bank may be a better place to do business.
As member-owned institutions, credit unions are pretty focused on taking care of their customers. Most are well-known for providing top-notch personalized customer service to their members.
Banks can do this, too, but some banks actually provide fairly poor customer service, and in-branch workers are often pushed to sell you products in order to increase the bank's profit margins.
However, banks can provide better service and support in certain realms. In particular, many banks have more full-featured mobile apps and better online technologies than credit unions. So if you generally tend to do your banking over the Internet rather than walking into a local branch, you may actually prefer the service that a bank provides.
Not all banks or credit unions are the same. There are large national credit unions and small local banks, and the service, features, and customer service can differ depending on the specific institution you choose. Still, most credit unions and most banks share some commonalities that can guide you toward the right choice for you.
By asking yourself these key questions and considering your priorities when it comes to your banking relationships, you can make the most informed choice about whether a bank or a credit union is best. The good news is, whether you opt for a bank or for a credit union, there are great ones out there that can provide the type of customer service -- and sometimes even easy eligibility -- that you're looking for. You'll just have to look around to find the right one for you.
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