At the first glance, credit unions and banks seem pretty much the same: both institutions offer savings accounts, checking services, certificates of deposits, and other financial services. Both have cash machines where you can withdraw your funds using ATM cards. Both have tellers where you can deposit your money.
However, if you look deeper, there are a number of differences between the two which can impact your lifestyle as a borrower. And because of these differences, the benefits and drawbacks of each institution is also different. Here’s an overview of the basic differences between credit unions and banks.
What are credit unions?
Credit unions are financial cooperatives where people combine their money to provide financial services like loans for the benefit of its members. Credit unions are not-for-profit financial institutions that are owned and operated by its members.
In credit unions, the term “members” and customers are interchangeable because these are the same people, no matter what the size of their deposits and assets are in the institution. Credit unions have mostly the same financial services as banks, and are also answerable to financial regulations just like banks.
What about banks?
Banks, on the other hand, are companies established to make a profit just like any business. Because of this, banks are financially larger than credit unions, and this shows in the services that banks offer. Big banks, in particular, have more financial products, account options, better online banking services, and customer service that can be contacted at any time.
What’s the catch with credit unions?
Since credit unions are not-for-profit financial cooperatives, they’re smaller than banks in terms of size, assets and services. And since credit unions are smaller, their services aren’t as robust as those offered by banks, especially the large ones. They have fewer ATMs and branches, and their online banking services—if any—have fewer features and aren’t as good as those of banks.
Credit unions are also known to provide more personalised services than banks. Walking in a credit union branch usually feels different in terms of atmosphere; it seems more relaxed. The drawback here is that it’s not as comprehensive as the 24/7 service that banks normally provide.
Here’s where credit unions have an advantage: interest rates. Since credit unions are established for the benefit of its members/customers, their rates are historically better in a range of financial services like savings, loans, checking, and certificates of deposits.
Interestingly, while banks are for-profit companies, they are still able to offer competitive rates, particularly in savings and checking accounts, especially when seeking to bring in new customers and increase their number of deposits.
The differentiator between banks and credit unions are credit cards. Yes, many credit unions do have better (i.e. lower) interest rates when it comes to credit cards, but not all credit unions offer credit cards. Credit cards are costly for any financial institution, especially credit unions since they their financial muscle isn’t quite the same as those of big banks. And interestingly, if a credit union does carry a credit card, it’s uncommon for it to be handled internally.
About the Author:
This article was brought to you by Tim. Having worked in the finance sector for many years, Tim has written many helpful articles to help readers manage their personal finances. He is also a content writer for bank.com.au