What are 3 differences between a bank and a credit union

Q: What are two main differences between a bank and a credit union?

Credit unions primary purpose is meeting their members needs. Credit unions are not focused on making a profit as much as banks are, so they are able to offer their members lower fees, better interest rates on loans and higher yields on savings.

For many people, banks and credit unions are considered one and the same because they both fulfil similar purposes and provide the same kinds of services. However, while it’s true that both types of financial institutions are in the interest of lending and banking, there are some key differences between a bank and a credit union. As similar as the services they offer can be, the way they go about attaining their goals and structuring their businesses are quite different.

In the end, choosing between a bank and a credit union comes down to the personal affinity of the individual and what that person hopes to accomplish through participation with a bank or credit union in Kingsley, MI. Both institutions are governed by similar laws and codes, but each has its own unique set of benefits and protections that may better dovetail with the financial needs of a given person. Keep reading to learn more about the differences between banks and credit unions and how they function.

Organizational Status and Ownership

One of the simplest distinctions that can be made between banks and credit unions is their organizational status, also known as their tax status. Banks are considered for-profit businesses, while credit unions are set up as non-profits. Also, banks can be privately owned or publicly traded, while credit unions are member owned. Credit union participants are called members, while bank participants are customers.

Rates and Fees

People need banks and credit unions to conduct common banking operations, as well as to lend money for personal needs, automotive purchases, mortgages, and business ventures. However, the cost of these services marks another point of distinction between banks and credit unions. Banks offer lower rates of interest on savings and have higher fees, while credit unions pay more interest on savings and have lower fees. Online credit unions can pay even higher rates of interest on savings.

Convenience and Accessibility

Another differentiation one can make between banks and credit unions is visible in how customers and members interact with the institutions. For example, banks will usually have more branches open than the average credit union. Most credit unions are consolidated into fewer, more specialized branches.

Services Offered

Banks generally offer greater diversity and more variety when it comes to services such as checking accounts, savings accounts, loans, and mortgages. Credit unions focus on a smaller line of services, but they place extra emphasis on offering high-quality products with a focus on customer service. Both types of financial services offer basic services like checking accounts, savings accounts, business accounts, and loans.

Insurance Providers

Both banks and credit unions, as well as their customers and members, are protected against financial loss of deposits through insurance provided by each institution’s respective insuring body. Money deposited in a traditional bank is insured by the FDIC, or Federal Deposit Insurance Corporation, while credit union deposits are protected by the NCUA, or National Credit Union Administration.

While both banks and credit unions meet the banking and lending needs of the public at large, the way they go about doing it is quite different. To learn more about the differences between banks and credit unions, contact Forest Area Federal Credit Union at (231) 879-4154.

Credit Unions vs. Banks: An Overview

When you’re deciding where to open your financial accounts, you may wonder: Should I go with a bank or a credit union? Today there are fewer differences between the two in terms of convenience, especially if the credit union that you’re considering has good online services and is a member of a co-op that provides access to branches and ATMs nationwide. Both banks and credit unions also offer equal safety for your money via federal government-backed insurance.

As you look into banks and credit unions, consider what matters to you most—for example, a slew of ATMs or the lowest fees on a checking account.

Key Takeaways

Credit unions tend to have lower fees and better interest rates on savings accounts and loans, while banks’ mobile apps and online technology tend to be more advanced.
Banks often have more branches and ATMs nationwide. Some credit unions offset this advantage with a CO-OP Shared Branch network of 5,600 branches and more than 54,000 surcharge-free ATMs.
Credit unions are known for providing better customer service, while large national banks tend to have stricter rules and less flexibility in decision making.

Sabrina Jiang / Investopedia

Banks

Ownership and Membership

Banks are owned by investors and operate as for-profit institutions, and banks must make a profit for their investors.

Anyone, including individuals or companies, is eligible to open an account with a bank. Customers do not have a vote or a say in how a bank is run, unlike a credit union, which has a membership. At a bank, you are a customer. At a credit union, you are a member.

Product Offerings

Banks offer both personal and commercial banking products, including business credit cards and business loans. Banks may offer investment and saving vehicles like individual retirement accounts (IRAs), certificates of deposit (CDs), and money market accounts.

Interest Rates

When you’re looking for a loan of any type, it’s always best to check both your local banks and credit unions. Online banks may offer lower rates than brick-and-mortar institutions with an online presence, but banks usually can’t compete with credit unions in this arena.

Fees

Since banks must make money for their investors, they tend to have more and higher fees than credit unions. Free checking accounts at banks usually come with stipulations, such as minimum account balances or requirements for additional account types (like mortgages or credit cards).

The fees for errors, such as a bounced check or overdrafts, tend to be higher at banks as well—especially if you don’t qualify for a premium account. Again, when you’re researching banking fees, it’s important to compare online banks with brick-and-mortar firms.

Online Services and Technology

Large banks tend to have more money to spend on technology; as a result, they are known for adding technical services much quicker than credit unions. Mobile banking services are likely to be far more advanced at banks. If technology and online banking are keys to your choice, make a list of your must-have services and ask for a demonstration of them before opening an account at a bank or credit union.

Credit Unions

Ownership and Membership

Credit unions are not-for-profit and are owned by their members, and according to the Credit Union National Association, 130 million Americans belong to one. Banks must make a profit for their investors, and credit unions have no need to make a profit for their members. Instead, their goal is to keep their fees low, to set their interest rates on savings as high as possible, and to set their interest rates on loans as low as possible. Credit unions must limit their customer base to what’s called a “field of membership.” This can include a company where people work, a school or place of worship, a geographic area, or a membership in an organization.

National credit unions get creative about how to increase membership eligibility. For example, Connexus enables membership through its association, which people can join for $5. Members of credit unions also have the ability to vote on credit union policies and participate in decisions; customers of a bank do not have this ability.

Product Offerings

Credit unions tend to offer fewer products than banks, especially in the commercial banking arena. Credit unions—which tend to be considerably smaller than banks—also typically offer fewer investment products and are often limited to checking and savings accounts as well as credit cards.

Interest Rates

In many cases, you’ll find that credit unions offer the lowest interest rates on loans, such as car loans and mortgages. As for interest rates on savings products, you’ll probably find that credit unions offer higher rates than banks. The National Credit Union Administration, using data from S&P Global Market Intelligence, regularly compares interest rates for savings deposits and loans for banks vs. credit unions. Its 2020 third-quarter table shows that credit unions posted higher interest rates on CDs as well as money market and savings accounts—and lower interest rates on most home and car loans.

Fees

Many credit unions offer checking accounts with no minimum balance and no monthly service charges. Depending on the credit union, the fees for banking errors, such as a bounced check, may be lower than a bank as well.

Online Services and Technology

National and global banking companies often have large budgets for technology, unlike many small credit unions. However, it’s possible to find national credit unions with digital banking options that provide most of the services you need. Make sure to ask credit unions about their mobile banking technology and check their websites for simplicity and services.

Accounts in banks and credit unions are insured up to $250,000, so there is no need to worry about the safety of your money.

Key Differences

Larger banks may subject you to bad customer service. One notorious case: In 2018, Wells Fargo was fined $575 million for opening unauthorized accounts and charging consumers for unnecessary auto insurance and mortgage fees. While this may have been a particularly bad actor among banks, many big banks are inflexible in their customer service because rules are not set locally. Rather, they are enforced by national boards of directors and executive leadership.

Credit unions look to serve their membership and tend to be more flexible when it comes to customer needs. Votes regarding customer service issues are influenced by the account owners—the members of the credit union—who have equal voting rights. Also, credit union membership is smaller and better known to local branches, which helps facilitate establishing relationships with branch managers and loan decision makers. That can make it easier to get the loan you need. Of course, some banks make consumer outreach a goal, so you may also find good personal service at a local bank branch.

Major banks typically have more locations to provide direct service to customers. Credit unions tend to be in much smaller towns and cities, with fewer branches. To offset this disadvantage, credit unions have formed a CO-OP Shared Branch network with more than 5,600 shared branches nationwide. Connexus, for example, allows you to search for branches online. In addition, it offers more than 54,000 surcharge-free ATMs through the CO-OP or MoneyPass to provide more competitive customer service nationwide.

Credit Unions vs. Banks
Credit Unions	Banks
Pros:	Pros:
• Offer lower interest rates and higher savings rates • Emphasis on strong customer service • May have low- or no-fee accounts and services for customers	• Offer a wider range of banking, loan, and retirement products • Larger banks offer convenience with access to multiple branches, ATMs, and online and mobile banking technology

Cons:	Cons:
• Fewer financial products • Inconvenience due to lack of branches • Potentially no mobile banking • Potentially low-tech online banking	• Potentially higher interest rates on loans • Less emphasis on personalized customer service • Most checking and savings accounts come with high fees

Special Considerations

Accounts in banks and credit unions are insured up to $250,000. Banks are insured by the Federal Deposit Insurance Corp. (FDIC), while credit unions are insured by the National Credit Union Administration (NCUA).

If you have more than $250,000 to deposit, talk with the customer service department at the institution you’ve chosen and inquire about the variety of account types you can use to increase your access to insurance. A checking account and a savings account, for example, will each qualify for insurance up to $250,000.

Are credit unions safer than banks?

No. Accounts in banks and credit unions are both insured for amounts up to $250,000 via either the Federal Deposit Insurance Corp. (FDIC) for banks or the National Credit Union Administration (NCUA) for credit unions. If you have more than $250,000 to deposit at either a bank or credit union, you should speak to account managers.

What are major advantages of credit unions?

Credit unions typically offer lower fees, higher savings rates, and a more personalized approach to customer service for their members. In addition, credit unions may offer lower interest rates on loans. It may also be easier to obtain a loan with a credit union than a larger bank. Finally, members of credit unions get to vote on policies and decisions made by the financial institution.

What are the disadvantages of credit unions?

Most credit unions cannot compete with banks when it comes to convenience (access to ATMs and branches) and technology like mobile banking. Many credit unions also have little to offer when it comes to online banking. Credit unions may offer lower interest rates on loans, but the array of financial products may be limited in scope compared with big banks.

The Bottom Line

Credit unions will likely offer you lower-cost services and better interest rate options for both loans and deposits. Banks will likely provide more services and products, in addition to more advanced technologies. You’ll need to take factors like these into consideration in deciding which type of institution will best serve your needs.

What are differences between banks and credit unions?

As mentioned above, the key difference between banks and credit unions is that banks are for-profit institutions that provide profits to their shareholders while credit unions are run by their members.

What are two main differences between a bank and a credit union?

Credit union's primary purpose is meeting their member's needs. Credit unions are not focused on making a profit as much as banks are, so they are able to offer their members lower fees, better interest rates on loans and higher yields on savings.

What are three similarities and differences between a bank and credit union?

While banks and credit unions are both financial institutions that offer similar services (checking and savings accounts, auto loans, and mortgages), the main difference between a bank and a credit union is that "customers" of a credit union are members, and they own the institution.