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Credit Union vs. Bank: What’s the Difference?
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When thinking about where to keep your money, a bank probably springs to mind. But it's definitely worth weighing the value of a credit union vs. bank before making any decisions. A bank is not your only option -- and it may not always be your best option. Credit unions are smaller and they offer some unique advantages. In this article, we'll go over what credit unions are and how to know whether one is a good fit for you.
What is a credit union?
A credit union is similar to a bank in many ways. However, credit unions are smaller, non-profit institutions. Banks tend to be larger and for-profit.
Just like banks, credit unions offer deposit accounts, like checking and savings accounts, as well as loans, and sometimes credit cards. However, some of the terms they use to describe their offerings are different. For example, what banks call certificates of deposit (CDs), credit unions often call share certificates. But other than the name, they're essentially the same thing.
Why credit unions:
- Emphasis on customer service
- Higher APYs on savings products
- Lower interest rates on loans
- Deposits insured by the National Credit Union Administration (NCUA)
How do credit unions and banks differ?
The key difference between a credit union vs. bank is that credit unions are nonprofits while banks are for-profit institutions. As a result, credit unions can offer lower loan rates and higher savings rates. However, credit unions tend to be smaller than national banks.
That means credit unions generally have fewer branches, fewer financial products, and limited ATM access. Also, online and mobile account management tools usually aren't as advanced with a credit union vs. bank.
Rates at banks may not be as attractive, but most banks have a large number of branches, a wide variety in financial products, and easy ATM access. Many banks also have highly-rated apps and websites for online account management.
Credit unions are usually designed to serve the financial needs of a particular community. That might be residents of a specific region, members of a certain faith, employees of a certain organization, or other groups. They usually have eligibility requirements, but they aren't difficult to achieve. Banks, on the other hand, serve just about anyone.
No matter which side you take in the credit union vs. bank debate, your money is protected up to $250,000 per person per account. Bank accounts are backed by the Federal Deposit Insurance Corporation (FDIC) while credit union accounts are backed by the NCUA.
Pros and cons: Credit union vs. banks
Here's a closer look at some of the pros and cons of a credit union vs. bank so you can decide which is right for you.
| Aspect | Banks | Credit Unions |
|---|---|---|
| Branch network | Large, sometimes national networks with many locations | Usually only a handful of branches in a limited area |
| Interest rates | Higher rates on loans, lower rates on deposit accounts | Higher rates on deposit accounts, lower rates on loans |
| Online account management | User-friendly online accounts, often with mobile access | Some online tools may be available, but credit unions are slower to offer these |
| Customer service | You may never talk to the same person twice | Strong emphasis on personal relationships with members |
| Deposit insurance | Backed by the FDIC | Backed by the NCUA |
Credit union vs. banks: Personal loans
When shopping for a personal loan, there are two key factors that distinguish a credit union vs. bank. First is the rates. As discussed above, you may be able to score a better rate with a credit union than with a traditional bank. This could save you hundreds or even thousands of dollars over the lifetime of your loan.
Credit unions may also have more lenient eligibility requirements. That means you could secure a personal loan from a credit union even when a bank might turn you away. They're worth considering if you have fair or poor credit.
Credit union vs. banks: Credit cards
You're more likely to find credit cards with a bank than you are with a credit union, but some credit unions do offer them. A credit union credit card may charge a lower interest rate, but otherwise, they're the same as bank credit cards. Requirements for approval are often less stringent, though you must be a credit union member to get one of its cards.
Credit union vs. banks: Mortgages
Choosing a credit union vs. bank for a mortgage involves many of the same considerations as any other type of loan. You may be able to score a better rate and have an easier time getting approved for a mortgage with a credit union than you can with a bank. But you have to be willing to accept more dated online services, which can make managing your account a little more of a hassle.
Credit union vs. banks: In a recession
History shows that when it comes to a credit union vs. bank in a recession, the credit union is likely to fare a little better. While both can be hit hard by tough economic conditions, credit unions were statistically less likely to fail during the Great Recession. But no matter which you go with, you shouldn't worry about losing money. Both credit unions and banks have deposit insurance.
What is right for you: Credit union or bank?
There are many factors to keep in mind when comparing a credit union vs. bank. Ultimately, it's a personal choice. Some people may be willing to accept less favorable rates in exchange for banks' larger networks and more advanced online tools. Others may be willing to put up with the lack of a mobile app in exchange for better customer service and less stringent loan requirements.
When it comes to credit union vs. banks, compare all your options before deciding what's best for you. And don't be afraid to think outside the box. Some small, regional banks may give you great rates and customer service while offering better online tools than credit unions. And online banks are known for having some of the best rates and online tools around, though they have no branches at all. Think about what matters most to you in a financial institution when making your decision.
FAQs
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Credit unions are nonprofit organizations while banks are for-profit companies. Banks usually have more advanced online tools and larger branch networks, but credit unions win when it comes to interest rates and customer service.
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A credit union is a better fit than a bank if you're looking for the most favorable interest rates and personalized customer support. They're also better options for those with fair or poor credit who may have difficulty getting approved at a bank.
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A bank could be a better choice than a credit union if you prefer to manage your money online and want the best online tools. Banks will also appeal to those who regularly travel outside their local area and still want convenient access to branches and ATMs.
About the Author
Kailey has been writing about banks, credit cards, loans, and all things personal finance since 2012. She also writes for The Ascent's parent company, The Motley Fool. Her work has appeared on USA Today, CNN Money, Fox Business, and MSN Money. She's a graduate of the University of Wisconsin and happily lives in the woods of northern Wisconsin where she grew up.
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