Credit unions and commercial banks have one major difference. Credit unions are not-for-profit financial institutions that exist to serve members and pay them dividends, and banks are for-profit institutions that pay declared earnings to stockholders only. Credit unions aren’t for everyone, however.
When deciding whether to join a credit union, consider its pros and cons before choosing one over a bank. When it comes to credit unions versus banks, it’s really a personal decision. Review your financial situation to see whether a credit union works for you, then explore the many types of credit unions to join.
Advantages of Credit Unions
To better understand why it can be beneficial to join a credit union, review some of the major advantages they offer:
- You’re a member, not just a customer. One of the benefits of a credit union is that you’re not just a customer, you’re a part-owner. You’ll get top-notch customer service, voting rights and dividends.
- You’ll get better rates. A credit union will get you lower rates on loans and typically enable you to earn more on deposits than traditional banks. Because credit unions are nonprofits, they pass on surplus funds to customers in the form of higher interest rates on deposit accounts.
- You’ll pay lower fees. Credit unions also pass on savings to members in the form of lower fees. That means you’ll be saving two ways — on lower fees and discounted loan rates.
- Better customer service is standard. Credit unions typically provide superb customer service. Because they tend to be smaller organizations than banks, credit union employees can get to know members and focus on their needs.
- Community comes first with credit unions. Credit unions are owned and run by members of a common community or workplace — like employees from a certain company. Credit union services are designed to benefit the local community and those who live there.
Are You Wondering: How Do Credit Unions Make Money?
Disadvantages of Credit Unions
Before you commit to this type of financial institution, understand the drawbacks that credit unions have:
- You must become a member. To take advantage of all a credit union offers, you must become a member, which will typically cost between $5 and $25, not including any additional minimum opening deposit requirements. If you’re not part of any group, there are plenty that anyone can join.
- They offer limited branch locations and ATMs. Many credit unions operate only in one location. Although the smaller, community-based focus is what attracts many credit union customers, the lack of multiple bank branches could be an inconvenience. Note, however, that many credit unions belong to shared ATM networks, which eliminates the issue of not finding enough credit union ATMs.
- Not all credit unions are insured. Similar to how banks are insured by the FDIC, federal credit unions are also insured by the U.S. government through the National Credit Union Administration. Although most credit unions are insured by the NCUA, some are not.
- Fewer services and options are available. Credit unions have come a long way in matching big bank services but not all can. If you need a large commercial mortgage loan, for example, your credit union might not be able to handle one.
- Credit unions aren’t as tech-savvy as big banks. Commercial banks have much larger assets than credit unions, which might not have enough money to fund new technology. For example, you might find banking apps, mobile deposits and the like only at bigger banks and credit unions.
Not All Credit Unions Are Created Equal
When you’re deciding between a credit union and a bank, find out which offers the best rates on the accounts and loans. Like banks, individual credit unions have different offerings, so find the right fit for your situation. Shop around — and take convenience and services into consideration when making your decision.