Credit Unions vs. Banks: The Key Differences You Need to Know About

Ownership

Banking terminology on its own highlights one key difference between banks and credit unions. For example, when you’re a customer of a bank, you’re called a “client,” while being a customer of a credit union means you’re called a “member.” Unique from banks, members of credit unions are termed as such because they become part of the ownership of the credit union. Conversely, the investors and shareholders own the banks. Also, where members of credit unions are clients, investors in banks are not necessarily its customers.

When you’re a customer of a bank, you’re called a “client,” while being a customer of a credit union means you’re called a “member.”

So, yes, you’re right if you’re thinking that being a member of a credit union means you’d be part of the decision making. Each member of a credit union is permitted to vote for the leadership of the credit union. The leadership teams for both banks and credit unions are known as the Board of Directors. The Board of Directors at credit unions are typically volunteer-based, while those working for larger banks are salaried individuals.

The driving force

If you search for one of the major American banks on the New York Stock Exchange, you’ll be able to see that institution’s current stock price. While not every American bank will be listed on the exchange, the big ones will be. And herein lies the key difference between banks and credit unions: banks are for-profit entities while credit unions are nonprofit.

Banks, while indeed sponsoring and donating to charitable causes, are driven mainly by keeping shareholders happy in the form of profitability. Conversely, credits unions often have a community-based mandate: looking to better the communities in which they serve.

Scope

Certain banks might have brick-and-mortar locations statewide, nationally, and, in some cases, internationally too. Access to personalized help and most importantly, your money, is simple when traveling or even relocating. Credit unions, on the other hand, might exist only in your community, resulting in fewer locations to service your needs. To facilitate ATM access though, many credit unions belong to an ATM network that provides you with access to your funds through the ATMs of partnering financial entities, so you can access your funds while traveling.

In conjunction with their mandate of serving their communities, receiving membership in a credit union means you need to live, work, worship, or attend school in the location defined by the credit union.

This differs from most banks, which require a Social Security number, date of birth, phone number, email address, and a physical US address. The requirements of bigger banks eliminate the need to reside, work, worship, or go to school in the area in which you bank.

Security of funds

Imagine you deposit $50,000 and the bank goes belly-up. Upsetting, right? Thankfully, both banks and credit unions (in most cases) offer deposit protection. While the source of the insurance differs, most regular accounts have $250,000 of insurance in the event of bank failure.

Credit unions, while not members of the FDIC, have insurance provided by the National Credit Union Administration (or NCUA). Similar to accounts covered by the FDIC, NCUA also provides up to $250,000 per individual depositor, and its coverage accounts for 98 percent of all credit unions.

To ensure your funds will be insured through either your bank or your credit union, it’s crucial to research the institution and verify the insurance coverage per account.

Technology

With the speed of technology, there is less and less need to visit a bank in person. With the availability of mobile check deposit, online banking, debit and credit chip technology, etc., finding financial services with cutting-edge technology has become more important.

It seems, though, that banks are quicker to roll out technological services than credit unions are. A bank’s larger size means more resources like personnel and bigger budgets, and the pace at which they rollout technological changes is faster than what credit unions can do.

If you’re looking for the most cutting-edge financial services, the banks are likely a better place to be.

Customer service

It’s said that the customer service received through credit unions tends be better and friendlier than that of the banks. It could be that since credit union customers are members, as mentioned above, perhaps they’re easier to please. Or, perhaps, employees of credit unions have higher work satisfaction?

Additionally, where banks have rigid parameters for providing loans and other credit products, credit unions are more likely to tailor products to your needs.

And, in the case of credit unions, their mandates are often focused on enhancing the communities they serve—they have an incentive to treat the individuals in these communities well.

So, when looking for friendly, personal service, it seems credit unions win over the banks.

Products and fees

Credit unions, like banks, offer services like:

• Checking accounts
• Savings accounts
• Credit cards
• Certificate of deposit accounts
• Business accounts

Additionally, at present, many big banks, like Bank of America, provide the ability to open brokerage accounts. For example, Bank of America and Merrill Lynch worked together to offer Merrill Edge. This merger provides customers with the opportunity to buy and sell in the stock market, at their discretion and without assistance.

Finally, many would argue that credit unions offer better opportunity in the form of interest and account fees. Conversely, though, the reward offerings might be lower. As there are always exceptions to the rule, it’s best to compare bank and credit union choices to best meet your specific needs.