Everyone needs a safe place to put their money. Maybe you’ve never had an account at a bank or credit union before, or perhaps you've recently moved, started a new job, or you just want to find an institution that actually cares about you and your money. You may be deciding between a bank vs. a credit union.
The good news is, you’ve already made the most important decision — which is to open an account in the first place. Being “unbanked” — which means not having a secure account where you can save and store your money — comes with serious risks, such as having your money stolen or destroyed, being forced to use expensive check cashing services, or having to carry cash with you all the time, none of which are safe. Even still, The Federal Deposit Insurance Corporation (FDIC) estimates that nearly 6 million Americans are unbanked. Clearly, getting a secure account is one of the most important steps you can take towards securing your financial future. Here’s a rundown on everything you need to know when making your choice between a bank and a credit union.
First, let’s talk financial security:
Credit unions and banks in the United States are insured in different ways, but both provide a similar level of security to customers, explains Michael Murdoch, Director of Marketing and Branding at CUCollaborate, a credit union consultancy.
Credit unions are insured by the National Credit Union Administration (NCUA), which provides deposit insurance to credit union members of up to $250,000 per depositor, per account type. (In other words, if you had a joint account with a spouse, you’d be insured for up to $500,000 total.) Meanwhile, bank deposits are insured by the Federal Deposit Insurance Corporation (FDIC) for the exact same amounts.
“So, if you have multiple accounts, each account is insured up to that $250,000 per depositor limit, and your money is safe up to those limits, whether you choose a bank or a credit union,” Murdoch says.
The bottom line: Banks and credit unions are created equal when it comes to insurance limits. Before you deposit money, triple check that your credit union or bank is insured by either the NCUA or the FDIC to make sure you’re covered.
Differences with eligibility:
Some of us may remember when credit unions had strict membership requirements. For example, decades ago, membership in a credit union might be tied to your place of work or profession — some credit unions could only be joined by workers at a particular paper mill, or only by teachers or firefighters, for example, Murdoch says. But it’s typically not that way anymore. Many credit unions in the country have applied for a charter to expand their memberships, and as a result are now more open than they used to be. Many are now open to almost anyone in certain professions, or who live, work, study or worship in particular areas, Murdoch explains. The best way to find which credit unions you’re eligible for is to search the National Credit Union Administration (NCUA) database, which offers an interactive map that allows you to search for the credit unions closest to you.
“Credit unions welcome new members. They have to have a large enough field of membership to grow and thrive. Typically, any consumer will likely be eligible to join,” says Carrie Hunt, Chief Advocacy Officer for America’s Credit Unions.
Banks, on the other hand, are open to anyone who meets their account opening requirements, which may include age, identification, credit history, and deposit amount.
The bottom line: Credit unions are initially formed by members who share some sort of common bond — but sometimes that bond is simply living in the same state. Banks are open to anyone who meets certain criteria for opening an account.
Ownership and governance differences:
You may have heard that credit unions are not-for-profit. This means that, unlike a bank, credit unions are not looking to make a profit off of you, the customer. Banks are typically owned by shareholders or investors, so their corporate decisions are made with the goal of maximizing profits for stakeholders. Instead, credit unions are owned and operated by their members, which is why they’re often called “member cooperatives.” Credit union members have voting rights and a say in the institution's governance.
“Credit unions are run by a board, that is, for the most part, volunteers. So because of that structure, credit unions inherently have this focus on serving their membership, and making sure those individuals are financially sound. Credit unions have a vested interest in making sure their members succeed,” Hunt explains.
Meanwhile, at a bank, clients do not have a say in how things are run, Murdoch says.
The bottom line: While banks are owned by shareholders with a goal towards maximizing shareholder profit, credit unions are member-owned cooperatives, and profits get reinvested into members (often in the form of lower interest rates on loans and higher ones on saving) and into the local community.
Fees and rates at a credit union vs. a bank:
Credit unions often have lower fees and better interest rates on loans, savings accounts and credit cards when compared to banks. This is because of their not-for-profit status — because credit unions are not looking to profit off their members, they typically return a portion of their earnings to members in the form of lower fees, higher interest rates on deposits, or better loan terms.
“Credit unions are designed to serve their members over maximizing profits,” Murdoch says. “So any profits get returned to members in terms of lower rates [on loans and higher rates on savings] which is really appealing to consumers looking to save money.”
Meanwhile, banks may charge higher fees than credit unions for certain services, including overdraft fees, ATM usage, and account maintenance, among other things. Interest rates on loans and savings accounts are often less competitive at banks compared to credit unions, Hunt says.
The bottom line: Fees and interest rates are often better at credit unions than banks, but it’s always essential to shop around for the best deal whenever you’re taking out a loan or opening a credit card. Sometimes banks offer preferential rates for products they are looking to shine a light on. A few days of comparison shopping online will let you know exactly where to put your money
Bottom Line: Banks are great, but credit unions are more invested in YOU.
While financial consumers can usually get everything they need from a bank, credit unions have several advantages that go far beyond just lower fees and competitive interest rates. Credit unions are known for their personalized service, and focus on improving their communities and helping to develop local businesses.
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