Both credit unions and banks provide a safe place for your money and offer similar financial products.
If you’ve ever needed to open a savings account or take out a loan, you may have wondered whether to go to a bank or a credit union. Is there even a difference?
In short, a credit union is a non-profit institution, while a bank is a for-profit one. Credit unions primarily serve their members by passing along savings, instead of maximizing profit. They often boast better customer service and better rates, while banks are better equipped for convenience. Both similar in their offerings, banks and credit unions come with their fair share of advantages and disadvantages.
Below are the features of a bank versus credit union at a glance.
|Higher fees||Lower fees|
|Lower APY, higher APR||Higher APY, lower APR|
|More branch locations||Fewer branch locations|
|Less emphasis on customer service||More emphasis on customer service|
|Technologically advanced||Technologically delayed|
|Credit card rewards program||Less robust or no card reward program|
Keep in mind that these are general differences, and that specific rates and benefits will vary by bank and credit union.
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Banks and credit unions also offer the same slew of financial products, including checking and savings accounts, CDs, auto loans, and mortgages. However, one of the biggest differences between the two are the rates and fees that they charge, which we’ll discuss later.
To open an account at a credit union, you’ll first need to become a member. Getting membership to a credit union is simply equivalent to customer. Depending on the credit union, you’ll qualify based on your association with a specific community, like a church or religious group, profession or employer, school, or geographical area. Many credit unions employ location-based criteria, and are meant to serve the local residents. So you’ll need to
As a member-owned nonprofit, credit unions are generally exempt from taxes, which is how they manage to pass along savings to the customers while providing lower fees and better rates. Some credit unions pay out some of their profits to members at the end of the year.
Loan rates, or APRs, are typically lower at credit unions than at banks. Additionally, savings and checking accounts tend to come with higher APYs, so your money has the potential to grow more quickly if it’s funded into a credit union account.
Finally, since credit unions emphasize customer service, you may have a better chance of receiving more personalized care. Credit unions might also hold local events that benefit the community.
Whether a credit union or bank is right for you depends on your needs and what you’re looking for in a financial institution. While credit unions generally boast better financial benefits for customers (better rates and lower fees) it’s still possible to find comparable benefits at a bank, given their variety, including many smaller customer-friendly ones.
If it comes down to convenience, you may want to survey your neighborhood and see what exists in the area. In a smaller city, for example, a local credit union might actually be more convenient and prevalent than a well-known bank. In any case, it’s important to shop around.
Elissa is a personal finance editor at Policygenius in New York City. She writes about estate planning, mortgages, and occasionally health insurance. In the past she has written about film and music.
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