Credit Unions vs. Banks: What's the Difference?
If you don't belong to a credit union — or even if you do — you may not be aware of the many ways in which they differ from banks. Although banks and credit unions both provide similar services, each offers different types of benefits for account holders and borrowers. Let's take a look at the characteristics of a credit union versus a bank and learn how to determine which one is best for you. (See also: The Benefits and Drawbacks of Credit Unions)
Credit Unions 101
A credit union is a cooperative financial institution in which individuals pool their money to provide loans and services to other members. In the United States, credit unions are nonprofit entities, and their cooperative structure is designed to ensure fair dealing. Additionally, anyone who belongs to a credit union must first qualify to join under a particular institution's field of membership.
Why Join a CU?
Because the users and members of the cooperative are the same people, the idea behind credit unions is that they provide services that are tailored to the people who use them, rather than to driving profit for the institution. In addition, each member of a credit union, no matter how small his or her holdings, often has a voting share in the credit union's affairs. This ensures the organization's policies match up with what members really want. In practice, credit unions offer the same services as banks and are subject to federal regulations that are similar to those under which banks operate. However, because of the democratic organization of these institutions, they are often able to offer higher interest rates and lower fees than their corporate peers. Also, because credit unions are smaller — and often local — institutions, they may offer more personal customer service.
The Downsides to Credit Unions
That said, there are also drawbacks to banking with a credit union, which are largely related to these institutions' smaller size. This includes fewer branches and ATMs, as well as a lack of or lower-quality online banking options. In addition, although service at a credit union may be more personal, it will not be as robust as the 24-hour customer service many big banks provide.
The Big Banks
While it's important to compare rates and fees between banks and credit unions when you're looking to take out a loan or open a new account, what banks can provide over credit unions is more...of everything. Banks are often much larger than credit unions, which allows them to offer much more variety to account holders. Generally, a larger chain or national bank will have more loan and account options. Plus, virtually all major banks offer excellent online banking and investment options, and as mentioned previously, a very robust customer service department that can be reached at any time of the day.
Are Credit Unions or Banks Better?
If you're looking for a loan or want to buy a certificate of deposit, it definitely makes sense to shop around and include credit unions in your search. Whether you settle on a bank or a credit union depends on your needs and what you value. For those who are looking for a checking and savings account, a few money market investments and a simple loan or two, a credit union may suit them just fine. Those with more high-powered portfolios may require the horsepower a bigger bank can provide, like these high-yield savings and money market accounts from Ally Bank.
This is a guest post from NewYorkBankingRates.com, a site that compares interest rates from New York banks and credit unions to provide residents with the best financial products in the city.