When it comes to choosing a bank, you may become stuck between settling with a traditional bank and a neighborhood credit union. On the surface, banks and credit unions are quite similar. They both offer checking and savings accounts, loans and other financial products. However, there are quite a few important differences.
This post will show you how they’re different. Then you’ll know which one is right for you!
The Main Differences
Generally speaking, a bank is a business that holds onto your money and creates a profit by investing the money or loaning it out to others. The bank also makes money by charging you with account fees and ATM fees.
Credit unions are member-focused institutions that operate as non-profits. A checking account is commonly known as a ‘share draft’ because when you deposit money at a credit union, you’re actually buying shares of the company. With a credit union, instead of being a customer, you’re a partial owner.
Credit unions generally offer the same services as a bank. On top of that, there is also a greater sense of community. It’s also common to find lower interest rates for loans. Basically, credit unions are known for friendly faces and low rates.
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Traditional Banks are Convenient
Traditional banks are on almost every corner, making it accessing your cash an easy feat. If you’re traveling or just need cash quickly and have a major bank like Wells Fargo, Bank of America, or JPMorgan Chase, you won’t have to go far to find a branch. You can even utilize their various different ATM locations when the bank is closed.
Most traditional banks also offer convenient tools like online banking and mobile apps so you can track and manage your account on the go. Large banks have the client-base necessary to create these conveniences. Expect smooth online operations at big banks.
The one downside with large traditional banks is that they can be very impersonal. You may be subject to long lines. You may never get the same teller twice.
Credit Unions are Personable
While credit unions may not be located on every corner, they take a more personalized approach and generally get to know their customers. At a credit union you’ll feel more like a member. You’ll have more of a say in what type of service and experience you want to have. When it comes to getting a loan, credit unions will be more lenient and willing to work with you and understand the financial factors that don’t show up on paper.
However, credit unions operate on a smaller scale than traditional banks and run fewer branches with stricter hours of operation. This may be an inconvenience for some people who live far from their credit union or work late hours. Friendly faces are nice but only when you see them!
The Truth about Fees and Interest Rates
Credit unions generally offer fewer fees and better interest rates for savings accounts, hands down. According to a recent report from Wallet Hub, credit unions continue to offer leading interest rates for savings accounts (while still being inferior to online banks) as well lower interest rates for personal loans. Credit unions also have lower checking account fees.
Most traditional banks have a long list of rules and requirements when you open a checking account. It’s important to read the fine print to ensure that you aren’t overpaying by getting charged a monthly fee, multiple withdrawal fee or any outlandish overdraft fees. At a credit union, there is less of a chance that you will get stuck with so many fees because these institutions do not rely largely on fee money for profit as is the case with banks.
Which is Better?
The answer to the age old question of whether you should choose a credit union or a traditional bank is almost always going to be subjective. In the end, it all depends on what you value: saving money or convenience.
If you are looking for convenience, easy access to your money when traveling, superb mobile banking tools and a wide variety of credit card programs, you may prefer to use a traditional bank. Just remember to read the free agreement before signing! If you don’t require the convenience of multiple locations and prefer a more member-focused type of institution with lower fees and better interest rates, you should consider a credit union.
It’s important to do your research and read the fine print before opening an account with either types of institution.
Do you prefer a credit union or a traditional bank? Let us know in the comments below!