Bank or credit union? What you need to know.

Bank or Credit Union

Pie or cake? Coffee or tea? Bank or credit union? While the latter is certainly not the sexist debate that’s ever existed, it can be a decision you may need to make at some point in your financial journey. At the end of the day, banks and credit unions do largely the same thing, however, there are some subtleties and nuances that exist between the two that can make one a better option over the other. We’ve put together some of the pros and cons of both so that you can be more informed when deciding which type of institution is best for you. So grab a slice of pie (or cake), settle in with a warm cup of coffee (or tea), and let’s dig in!

 

What’s the difference?

Simply put, banks are for-profit institutions owned by investors while credit unions are not for-profit and are owned by the participating members. While this is an oversimplified explanation of the differences, it’s important to note the distinction as it helps explain the main motivations behind each institution. Given that banks are beholden to investors, creating revenue and profit is going to be the main objective which can manifest itself in account fees and charges. The pursuit of profit is obviously not a bad thing and that additional revenue allows banks to invest in better mobile apps, more branch locations, and other financial services credit unions just can’t offer. Now, because credit unions are owned by their members, their main objective will be to ensure those members are happy and feel that their financial needs are being met. While this can lead to fewer fees and more attractive interest rates, that lack of profit means investments in mobile apps, additional branch locations, and other financial services may be missing.

 

What’s on offer?

With size and more money to work with, banks will have the edge here in what they’re able to offer customers. This is particularly true when it comes to business and commercial banking – think business credit cards and banking support. Banks will also be able to offer a more diverse product offering when it comes to investment, savings, and retirement accounts. We’ve talked about these before but think IRA’s, money market accounts, and certificates of deposit. Credit unions typically operate with a more basic set of banking options such as checking accounts, savings accounts, and credit cards. 

 

What’s the cost?

This is where banks and credit unions really stand apart from one another. As we already mentioned, banks are out to make a profit and placate investors. Where they find those profits are often with account fees and charges passed on to their customers. These can look like account balance minimum fees, exorbitant overdraft penalties, and out of network ATM fees. Some of these costs can be offset if you qualify for “premium” accounts (a different post for a different time) but for the basic consumer with standard accounts, these fees can start to add up in a hurry. On the other end of the spectrum, credit unions typically don’t have account balance minimums or high account maintenance fees. Credit unions will also typically have higher interest return rates on savings accounts and lower interest rates on home and car loans. 

 

Ease of use

Large banks will almost always have a more robust network of ATM and branch locations. If you travel a lot or just like the flexibility of having a banking location close to wherever you are, this should be a consideration when making your banking decision. While credit unions may only have a few branch locations, more and more of them offer member participation networks where clients can handle banking needs with participating institutions. As we mentioned before, mobile banking experiences will typically be more polished with a large banking institution as credit unions just won’t have the same amount of capital to invest in that department. However, because of the smaller size of credit unions, the customer service experience can often be much better. Large banks will often have more stringent rules and regulations without the ability to alter protocol depending on the situation. Due in large part to the fact that credit unions are owned by their members, there is usually more room for interpretation when it comes to disputes.

 

Deciding whether you want to go with a bank or a credit union can come down to quite a few factors, almost all of which will be unique to you. Figure out what’s most important to you from a financial services standpoint and then work out which type of institution is best suited to meet those needs. Both options have their pros and cons so it’s important to determine what you need now and what you could potentially need in the future when it comes to a banking institution. Either way, the more research you’re able to do the better informed your decision will be.

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