What is a Credit Union?

Credit unions and banks have many similarities and differences. While they are both financial service institutions, one of the biggest differences is that credit unions are non-profit cooperatives and banks are for-profit companies.  But, as fees for financial services continue to rise and lending rates continue to fluctuate, many people are searching for the best financial service options available.  This leaves many people evaluating the difference between credit unions and banks to determine which one of these financial institutions is more useful for their financial needs.

Similarities and Differences

• Both credit unions and banks operate under similar laws and are regulated by government agencies, so both have to adhere to specific guidelines when paying interest on accounts, charging interest on loans, and the range of financial services they make available. Both also insure deposits up to $250,000 – the FDIC for banks and NCUA for credit unions make this guarantee. They differ in that as a cooperative, a credit union is “owned” by its members or shareholders. Banks are most often owned by a group of shareholders (usually directors) or a publicly owned if they’re large enough.
• Another distinction is that credit unions have and serve “members”. A credit union’s members typically come from some particular affiliation the credit union has with a population. This affiliation can range from living in a specific community or working at a specific business, to serving in the military or other government service. Banks, on the other hand, serve “customers” – meaning they are open to anyone who wants to open an account. A bank’s customers do not own a stake in the organization like credit union members do.
• Typically, both credit unions and banks offer loans, checking accounts and savings accounts. Often times, however, because of their non-profit status, credit unions will have lower fees on such financial products and better rates on deposits and loans. Comparatively, banks will more often have more extensive commercial banking services, as well as trust or investment services. These differences are not always apparent with every institution, but are generally true.
• When deciding between a bank and a credit union, it is important to consider which works best for your particular financial needs. Larger banks are likely to offer more of their own branches or ATMs, whereas credit unions are likely to rely more on cooperative-networks of shared branches and ATM systems. So you’ll want to consider how important “convenience” is to you and how often you will be wanting to visit a branch when evaluating institutions.
• Many banks and credit unions offer secure banking apps for their account holders. Again, both will offer similar digital access, but specific features will vary by institution. Here again you will want to consider what your personal degree of digital savvy is and what types of functions you want to be able to do from your home or mobile phone.

Certainly, the subtle differences between banks and credit unions can be rather confusing. Your best option is to evaluate the convenience and services you desire in your financial institution. You’ll also want to determine if you want to be a customer or a member of your financial institution – for some it matters, but for others it does not. Finally, you’ll want to check out what your choice for a bank offers versus what your choice for a credit union offers and make your own comparison. It’s all a little more work, but you’re much more likely to be happier with your choice if you know what’s really important in your banking relationship.

To learn more about credit unions, please visit our sponsors, Atlanta Postal Credit Union or Center Parc Credit Union– they’ll be happy to help with your specific questions.