Banks vs Credit Unions: What’s The Difference?

by Aug 1, 2019Financial Planning

On the surface, banks and credit unions can appear virtually identical. Both typically offer a standard range of consumer services like checking and savings accounts, a variety of loan types, and basic investment products. But beyond the basics, there are some key differences when comparing banks vs credit unions that you should take into consideration before opening an account in one or the other.

What Is A Bank?

The most important distinction between banks vs credit unions is that banks are for-profit businesses. This typically means that banks offer lower interest rates, charge higher fees, and often don’t have the same quality of customer service as credit unions.

On the other hand, large banks tend to offer more locations, better online banking experiences, and rewards programs.

What Is A Credit Union?

Credit unions are nonprofit organizations that are owned by the members of the credit union. In contrast to banks, they frequently offer higher interest rates, lower fees, and better customer service. The downside to using a credit union is that–depending on its size–it may have only a few locations and limited online banking.

Another drawback of credit unions is that there may be prerequisites for membership. For example, you may need to be a resident of the town or city a credit union is located in. In some cases, credit union membership is dependent on your occupation, like being a firefighter, a police officer, or other type of public servant.

Which One Should I Choose?

Deciding which type of financial institution to use is a personal choice. If you’re uncertain which one makes more sense for you, ask yourself the following questions:

  • Will you do your banking primarily online, or in person?
  • How important is customer service to you?
  • Do you tend to incur a lot of fees at your bank?
  • Is being able to find a nearby branch ATM important?
  • What services besides checking and savings do you need?

Once you’ve answered those questions, it should be easy to determine whether using banks vs credit unions is the right choice for you. If you decide to use a credit union, make sure you meet any membership requirements first. Also, consider asking around to see which local banks or credit unions have the best reputations in your local community.

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