What Is the Difference Between a Bank and a Credit Union?
Credit Unions
When looking to open a savings or checking account, several factors are considered when choosing a financial institution—the line of credit, availability of ATMs countrywide, online services, and safety for your money.
Often overlooked financial institutions that offer these services are credit unions that differ from banks in the following ways.
For-Profit VS Nonprofit
Credit unions offer membership to their customers, including voting privileges and participation in dividend division at the end of the financial year due to member contributions from deposits.
On the other hand, banks are more driven to maintain their investors’ interests than service delivery to their customers because profit sharing is reserved for investors, unlike customers whose deposits do not warrant a stake in the institution.
Interest Rates
Banks tend to have higher interest rates on lending and a lower annual percentage yield for saving products, while the inverse is true for a credit union.
Given the membership nature of a credit union, customers tend to enjoy a higher annual percentage yield on saving products due to dividend division.
Also, interest rates on lending are lower due to the risk-sharing nature of the business among its members.
Fees
Banks are driven to generate profits for their investors and thus have higher fees than credit unions.
In contrast, credit unions have no minimum balance requirements, lower deposit requirements to open accounts and lower overdrafts, insufficient fund fees, and ATM fees due to the shareholding nature of the customer relationship you will enjoy.
Products and Services
Banks offer both personal and commercial banking products and are open to any.
At the same time, credit unions are only open to members belonging to the community served by the credit union, thus making banks an easier choice.
Banks have more branches and ATMs available countrywide than credit unions, making it easier to access your money from a bank than a credit union.
Insurance
Banks are insured by the Federal Deposit Insurance Corporation (FDIC), while federal and most states are insured by the National Credit Union Administration (NCUA) in case of insolvency of the financial institution, thus your money will be safe in both institutions.
Credit unions will provide relatively low-cost services and better interest prospects for both loans and savings.
In contrast, banks will supply you with more services and products with advanced technology.
You’ll need to consider factors like these while determining which type of facility will best meet your financial needs, especially when applying for a loan.
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Category: Banking
