Banks vs. Credit Unions
On the surface, banks and credit unions appear to serve similar functions. However, there are many differences between the two. The stark distinction is that banks are under obligation to stockholders, whereas a credit union is a member-owned institution. Before making a decision as to which you should use, it is important to review the pros and cons of banks and credit unions.
Advantages of Banks
The primary advantage banks have over credit unions is that they are more widespread and offer more services. Many banks operate on a national or international scale, and anyone who must travel extensively may find that banks are a better option for them. Also, banks usually have varying options for checking and savings accounts, as well as packages for each. Some accounts offer higher interest rate accumulation for those who deposit more money on a regular basis. While some banks charge a monthly fee, there are ways to circumvent this fee, usually by using direct deposit or by covering a minimum balance requirement.
Disadvantages of Banks
Banks are for profit organizations. Therefore, banks wish to profit off of you. A bank’s primary duty is to satisfy it’s shareholders and they may be reluctant to give you any type of personalized service since you are a customer only. Most banks charge a monthly maintenance fee if you do not keep a certain amount in your account at all times. This can add up over the course of a year, depending on the stipulations for each bank.
Advantages of Credit Unions
When your money is vested in a credit union, you are not just a customer, but an owner. If your credit union earns a profit, you will share in those profits. You also have personal influence in your financial institution, and you can share your opinions about how things should be run. Credit unions hold general meetings for those who use them, and you can attend these meetings, voice your concerns, and vote on how day-to-day operations should be handled. Traditionally, credit unions offer better interest rates on their products and loans than banks.
Disadvantages of Credit Unions
A lack of security is the most significant drawback to credit unions. While you have more control within the organization, your money is not as secure as it is with a bank. If you use a federal credit union, the Federal Deposit Insurance Corporation (FDIC) insures your savings, just as it does with banks. However, if you use a smaller union, the FDIC may not insure it. This means that if your credit union goes bankrupt and your money is uninsured, you could lose all of it. This is one of the first things you should ask about when you decide to invest in a credit union. Contact the appropriate state agency to inquire about insurance if they are not covered under federal law. Lastly, credit unions tend to have fewer branches than banks, so it may be difficult to access a branch or avoid ATM fees.
Article written by Anne Lee. Anne loves sharing her knowledge of finance though blogging. She knows that we often wonder the difference between Credit Unions and banks, and what to know what’s the best option for our needs.