When you are looking for a new checking or savings account, loan, or line of credit, you have more choices than the many local and national banks competing for your business. The most overlooked option for this type of product is the credit union, which offers many similar financial products and services that you can get at the bank.
But what exactly is a credit union, and how is it different from a traditional bank? Although both banks and credit unions have similar offerings, there are some important differences between the two types of institutions.
Understanding the difference between banks and credit unions can help you make the best decisions for yourself and your family. Here’s what you need to know about how banks compare to credit unions, so you can find the best home for your money.
What’s the Difference Between Banks and Credit Unions?
|Owned by shareholders & investors
|Owned by member customers
|Serve the public
|Serve members only
|Offer topline products & apps
|May not offer all types of loans
|Payless interest on deposits
|Pay more interest on deposits
|Charge higher rates on loans
|Charge more favorable rates on loans
Bank vs. Credit Union Ownership
The main difference between banks and credit unions is ownership. Credit unions are non-profit organizations. They are owned and controlled by their customers, who are called “members”. The main purpose of credit unions is to promote the financial well-being of their members and to return profits to them.
Banks are for-profit organizations owned and operated by shareholders. Depending on the bank, these investors could be thousands of anonymous stockholders or just a few large investors. The main objective of banks is to maximize profits for their shareholders.
Banks are open to the public. Regional banks that operate within a specific area may limit some or all of their banking products to the people of that area. National banks generally extend individual accounts to any legal resident 18 years of age or older.
Credit unions need to limit their customer base to a group of people who share a common bond called a “field of membership”. Meeting the need is relatively easy. Depending on where you work, you may be eligible to join a credit union. , Where you live, or because of your membership in an organization, such as a school or place of worship. You may also be eligible because a family member is eligible.
Bank vs. Credit Union Products
The choice of bank or credit union will not limit the products available to most consumers and consumers who want to handle personal and small business finances. The basic offerings in both types of financial institutions are practically identical.
Most banks and credit unions offer:
- Checking accounts
- Savings accounts
- Money Market Accounts
- Certificate of Deposit (CD)
- Business bank accounts
- Home loan (including purchase loan and refinancing)
- Auto loans for new and used vehicles (including motorcycle and RV loans)
- Land and construction loans.