It’s a common misconception that a credit union and a bank are both the same, but they are very different. A major difference is that credit unions are not-for-profit financial institutions with members who typically share a common bond. On the other hand, banks have shareholders who expect them to turn a profit and make money for them.
What is a Credit Union?
A credit union is member-owned and democratically controlled by those members. When a person joins a credit union, they become an owner of the credit union. Unlike shareholders of a corporation, credit union members have one vote in the election of their credit union’s board of directors, regardless of how much money they have on deposit. As owners, members elect board directors who hire and oversee the paid professionals who manage the credit union. In addition, board members may serve on committees that assist in making policy and other important decisions for the credit union.
What is a Bank?
A bank is an institution that offers a wide variety of financial services. Banks can offer checking and savings accounts, loans, mortgages, debit cards, credit cards, and investment products.
Comparing a Bank and a Credit Union
Membership at a credit union can be based on an individual’s place of employment, residence, or some other factor. Banks are open to anyone who wants an account. However, credit unions may not have as many branches as banks, and they often charge lower fees than banks. In addition, because they’re nonprofits, credit unions typically offer higher interest rates on savings accounts and loans, which means people earn more money when they save and pay less when they borrow.
2. Fees and charges
First of all, the money is insured, whether it’s at a credit union or a bank. However, credit unions may offer higher interest rates than banks, especially on savings accounts and loans. Second, some credit unions are smaller than banks and have fewer branches, which means less access to money. This is something to consider when choosing between the two.
Banks offer loans with fixed interest rates, while credit unions may offer variable interest rates that go as low as the prime rate plus 1%. While there are some downsides to using a credit union, like not being able to access the money at ATMs worldwide, the benefits usually outweigh the cons in most cases.
4. Customer Service
Credit unions also have better customer service than many big banks due to their small and local focus. However, some people prefer larger banks over smaller ones because of convenience factors like ATMs being available 24 hours per day or having more options when it comes time to make payments on things like mortgages or car loans.