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Benefits and Risks Explained: Credit Unions Vs. Publicly-listed Banks

Susan Kelly

Dec 10, 2023

The leading institutions in the money management sector are credit unions and public banks. Their operational structures, goals, and customer approaches differ significantly despite offering similar banking services.

Similar Services in Credit Unions and Banks

Consider credit unions and banks for similar services when choosing a financial institution. Both types of banks offer services for most consumers' banking needs.

  • Checking and Savings Accounts: Credit unions and banks offer checking and savings accounts for daily financial transactions and savings.
  • Money Market Accounts: Both institutions offer money market accounts for those seeking higher interest rates than savings accounts.
  • Home and Auto Loans: Credit unions and banks offer home and auto loans for home and car buyers.
  • Small-Business Loans: Banks and credit unions offer small-business loans to entrepreneurs to start or grow their businesses.
  • Credit Cards: Both banks offer credit cards for spending.
  • Direct Deposit and Mobile Banking: Direct deposit and mobile banking are convenient for banks and credit unions.
  • ATM Accessibility: Larger banks have more ATMs, but many credit unions reimburse ATM fees, making cash withdrawals easier.
  • Overdraft Protection: This service helps you manage your account and avoid overdraft fees.
  • Protection and Insurance: Banks and credit unions are similar in ensuring deposited funds of up to $250,000. The FDIC and NCUA insured banks and credit unions, respectively. Look for an NCUSIF or FDIC-insured sign to verify federal insurance.

Differentiating Banks and Credit Unions

Comparing banks and credit unions shows they offer similar services like checking accounts, savings, and loans. However, their operational structures and goals distinguish these two financial institutions.

Profit Orientation vs. Member Service

Banks exist for profit. Many publicly traded banks aim to maximize shareholder profits. Taxable entities pay federal taxes on profits. These banks charge higher fees and lower deposit interest rates than credit unions to maximize profits.

However, credit unions are non-profit. Federal tax exemptions apply to national credit unions due to their tax structure. This non-profit status lets credit unions focus on serving members rather than making money. Some organizations sponsor them and give them subsidies.

Member Benefits and Operational Differences

Since credit unions are non-profit, they can offer better terms to members—less interest on loans, lower service fees, and better savings account rates. Credit unions may distribute dividends to members if they have surplus income, emphasizing their member-centric approach.

Unlike banks, where decisions are often influenced by the need to generate profits and satisfy shareholders, credit unions prioritize the financial well-being of their members. The contrast in the operational ethos of banks and credit unions is stark; while banks, listed on various publicly traded bank lists, answer to paid board members, credit unions are more aligned with the interests of their members, offering a more community-focused banking experience.

Exclusive Membership vs. Open Access to Banking Services

Most banks welcome any customer without an adverse banking history. However, credit unions operate differently. These cooperatives comprise members sharing a common link, such as working in the same sector, belonging to the same religious group, or residing in the same area.

Unlike the list of publicly traded banks, you can't simply choose a credit union and join. Eligibility is a must to become a member. Some credit unions set strict criteria for membership, while others are more inclusive, allowing anyone to participate upon paying a fee.

Credit union members elect a volunteer board to oversee operations. This board typically includes members who bank with the credit union, focusing on meeting community needs rather than generating profits for external investors.

Personalized Service vs. A Wider Range of Services

Credit unions, rooted in community values, often provide more personalized service than large banks. They may be more likely to approve members' loans and often engage in financial education and community outreach.

Due to the requirement for a common bond, credit unions usually are smaller than national banks. This size difference might limit their product offerings. For instance, not every federal credit union offers commercial loans.

Their smaller size can also mean fewer branches. However, many credit unions now collaborate, offering shared branch services and ATMs. This network allows members to access services at credit unions nationwide, almost as if they were at their local branch.

Benefits of Choosing Banks

Accessibility through Physical Branches and ATMs

One significant advantage of banks is their physical presence. Many consumers appreciate the convenience of local bank branches and ATMs. Although much of today’s banking is online, there are occasions when visiting a branch or using an ATM is necessary.

This aspect of banking is where banks often outshine credit unions. The widespread network of branches and ATMs, a hallmark of many banks, especially those on the list of publicly traded banks, provides accessibility and convenience that can be crucial for customers.

Online and Mobile Banking Platforms

Banks generally lead the way in the realm of online and mobile banking. Their websites and apps are often more user-friendly and feature-rich, making account management straightforward and efficient.

While many credit unions offer online banking, the quality and functionality of their platforms can be inconsistent. For customers who prioritize the ease of managing their finances via laptops or smartphones, banks will likely offer a more satisfying experience than credit unions, including federal credit unions.

Benefits of Credit Unions

Reduced Fees and Minimal Requirements

Credit unions offer cheaper and more convenient banking services than banks. This is especially evident in account management. Credit unions are known for providing checking accounts without monthly maintenance fees or minimum balances, unlike banks.

Superior Savings and Loan Rates

Savings accounts and loan rates are credit unions' strengths. Credit union savings accounts have higher interest rates than banks. A credit union account will grow your money faster than a bank account. Credit unions are known for low-interest loans.

Federal credit unions offer lower interest rates, making borrowing money cheaper. Most customers want a bank with competitive loan and savings rates. Due to this apparent benefit, credit unions are gaining popularity among consumers and businesses seeking alternatives to banks.

Personalized and Attentive Customer Services

Credit unions and big banks differ in customer service. Credit unions, smaller financial institutions prioritizing member needs over shareholder profits, are known for their personalized service. Because they care about their members, credit union representatives are more likely to give you customized service.

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