What’s The Difference Between Credit Unions And Banks

Getting Long Term Loans From Credit Unions

Are you thinking about opening a new bank account but not certain which type of financial institution is best for you? It’s true that banks and credit unions both offer similar services and products, but there are some key differences between the two.

Anyone considering either option should be aware of the difference between credit union and a bank since they can make a significant difference in terms of costs and customer service. This article will walk you through the advantages and disadvantages of each, as well as identify their key differences, so you can make the best decision for your financial needs.

Bank vs Credit Union: Let’s Define Them

Banks and credit unions are two types of financial institutions that help you save and manage your money. Banks may offer more services and greater convenience, such as college loans, but credit unions are often more affordable and offer better customer service. Let’s take a more in-depth look at them. We have done the research, so you don’t have to.

What Is A Credit Union?

A credit union is a financial lending institution that is owned by its members and operated for their benefit. It works in the same way as a bank, but with several key differences.

Interest rates on loans are lower
Higher rates on savings
Fewer fees
Personalized and community-focused

Credit unions are governed by a board of directors that is elected by the members. The board sets policy and oversees the organization’s operations. And members have the right to vote on major decisions, such as the hiring of new staff and the approval of new products and services.

They are also not-for-profit organizations, meaning that any profits generated are reinvested in the cooperative to improve services and products for members. This allows them to offer competitive rates and fees in order to attract new members.

Who Can Join A Credit Union?

Generally, credit unions are a lender that serves a specific group of people who have something in common. Eligible criteria will depend on:

Geographic areas, like a city, county, or state
Employer
Specific occupation
College status
Faith or a shared set of values

Membership is open to anyone who meets the criteria of the organization. Once you are a member, you are more than just a customer. You become a part-owner of the organization, with access to all the services it has to offer.

What Is A Bank?

A bank is a financial institution lender that offers a range of services, from accepting deposits to providing loans. They are the mainstay of the financial system and are responsible for a large part of the money supply in any economy.

They create money by lending it out, and they also:

Facilitate payments between different parties
Provide a secure place to store money
Offer a range of investment products, such as mutual funds and stocks

Banks are highly regulated and must adhere to stringent rules and regulations. They are also responsible for monitoring customers’ financial activities and ensuring they comply with anti-money laundering laws and other regulations.

What Is A Bank

Bank vs Credit Union: Let’s Compare Them

Now that you understand what banks and credit unions are, comparing them as a lender is an important step before signing up for any kind of financial product or service. Doing so will help you find the best types of deals and rates, as well as ensure that you don’t get caught up in hidden fees or other catches.

You’ll also get to know the ins and outs of the services offered by each company, such as the specific features of their products, customer service, and the speed and convenience of their services.

Owners

When it comes to ownership, banks and credit unions differ significantly. Banks are owned by shareholders, who are typically large institutional investors. Credit unions, on the other hand, are owned by their members, who are the customers of the credit union.

This means that credit union members have a say in how the institution is run, whereas banks are managed by a board of directors that is separate from the shareholders. Therefore, when you join a credit union, you become an owner, but when you open an account at a bank, you are merely a customer.

Services

Banks are typically larger and more widespread, making them more convenient for many consumers. They also offer a wider variety of services, such as mortgages, investments, and business banking. On the other hand, credit unions are typically smaller and more localized, and they tend to focus more on consumer services than business services.

They also typically offer better interest rates and lower fees than banks, especially for loans, making them a great choice for those looking to save money.

Both banks and credit unions offer services such as savings and checking accounts, debit and credit cards, and online and mobile banking.

Interest Rates

Banks are typically known for offering higher interest rates on deposits, which is good for savers, but they also usually charge higher rates on loans. Typical rates range between 0%-18%. This is because, as a lender, they are for-profit organizations and need to make money to stay afloat.

On the other hand, credit unions are not-for-profit organizations, so they can offer higher interest rates on savings too, but they also charge lower rates on loans. This allows them to be more competitive and offer better rates on loans.

In addition, credit unions often offer fewer fees and more flexible terms than banks. Typical rates range between 0%-8%.

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Fees

Banks often charge higher fees for their services than credit unions, and this difference can be especially pronounced when it comes to checking and savings accounts. They tend to charge fees for:

Monthly maintenance
ATM usage
Overseas transactions
Overdraft

While credit unions may waive these fees or offer them at lower rates. Additionally, banks may charge for additional services such as wire transfers, stop payments, and balance inquiries, while credit unions often provide these services for free or at a reduced rate.

Safety

As far as safety is concerned, banks and credit unions are very similar. Both are FDIC insured, meaning that your money and assets are protected up to certain amounts by the government if the institution fails.

Both institutions also must follow the same types of federal laws that protect customers from fraud and identity theft.

Credit unions have the edge over banks when it comes to protecting your money – deposits are insured by the National Credit Union Share Insurance Fund (NCUSIF). Due to modern technology, these days, both options can protect their customers’ information and accounts with digital security, encryption, and secure authentication protocols.

Summing Up

Below, you will find a handy chart for a quick comparison of banks vs credit unions. In the end, it’s up to you to decide which financial institution is the best fit for your needs.

	Banks	Credit Unions
Owners	Owned by shareholders, who are individuals, institutions or other entities that have purchased stock in the bank. These shareholders are entitled to the bank’s profits, but they have no say in the bank’s operations.	Owned by their members, who are the people that use the credit union’s services. Members have a say in the credit union’s operations, and they’re entitled to vote on major decisions and elect board members.
Services	Offer more services, such as investment accounts, college loans, business banking products, and services for high net-worth individuals.	Offer fewer services, but they tend to have better rates and fees, with a strong emphasis on customer service and financial support for members.
Interest Rates	Have high interest rates on deposits and loans.	Have low interest rates on deposits and loans.
Fees	Tend to have higher fees (maintenance, overdraft, and late fees) as they are for-profit entities. Provide high rates on loans and lower rates on savings accounts.	Tend to have lower fees as they are not-for-profit entities. Provide low rates on loans and higher rates on savings accounts.
Safety	Owned by shareholders who are looking to make a profit and are insured by the Federal Deposit Insurance Corporation (FDIC).	Owned by their members, who have more of a say in how the organization is run, and their deposits are insured by the National Credit Union Share Insurance Fund (NCUSIF).

Bank vs Credit Union: Pros And Cons

Banks vs credit unions can be tricky to decide between. This table helps you weigh the pros and cons of both to help you make the right decision for yourself.

	Banks	Credit Unions
Pros	Lots of services and products More branches Guaranteed online banking Not income dependent College students are eligible	Low interest Low fees More customer-focused More personalized services
Cons	High interest High fees Not ideal for bad credit borrowers Income dependant College students may not be eligible	Only member are eligible Fewer ATMs Fewer branches Limited services

Is It Better To Have A Bank Or Credit Union?

If you’re looking for a wide range of loan options, such as terms and amounts, then a bank would be better for you. They are also the best option for those looking to capitalize on their savings interest. Plus, their overdraft options, while usually charged at a fee, can come in handy for those who need them.

However, if you have slightly less than ideal credit, then looking into a union will be better for you, as they are more likely to tailor their loan options. However, you will need to become a member, which usually comes with a fee.

Conclusion

There are a number of financial institutions that offer different ways to save and manage your money. Banks and credit unions are two of the most popular options available. But what exactly is the difference between them?

While banks are typically larger and offer more products and services, credit unions are often smaller and more focused on giving back to their members. So, whether you’re a first-time saver or an experienced investor, grasping the distinctions between credit unions and banks can aid you to make the best choice for your financial goals.

FAQs

Is it better to have a credit union or bank?

Banks are best for savings, online banking, and convenience, while credit unions are best for those who are eligible and seeking lower rates and fees on loan products.

What are the best banks to bank with?

Tangerine (online banking), TD (loans), BMO (investments), Scotiabank (cheques), CIBC (SMEs), and RBC (mortgages).

What does a credit union do?

A non-profit organization formed by a group of people who share a common bond. Credit unions offer services such as college funding, savings accounts, checking accounts, loans, and other financial services. They also offer competitive interest rates, low fees, and flexible loan terms.

What is the number 1 bank in Canada?

With over one trillion dollars to its name, Toronto-Dominion Bank (TD Bank) is the number one bank in Canada.

What is the best credit union to use?

For Canadians, Servus, Vancity, and Meridian are your best options.

Which is safer: a bank or credit union?

Both institutions are safe. They each offer payment protection in the form of loss, have encrypted online banking protections, and are backed by federal insurance.