Are you about to open a financial account, but you’re not sure if you should open it with a credit union or bank? You’re certainly not the first person to face this important choice. When it comes to financial institutions, most people are familiar with banks. However, there’s an alternative option worth considering – credit unions. Credit unions are not-for-profit organizations that operate similarly to banks but with some notable differences that can make them a better choice for certain people.
While both might seem fairly similar, there are quite a few differences between the two, and knowing those differences can help you make the best decision for your financial situation. Let’s take a closer look at why many people choose credit unions over their more traditional alternatives.
What is a Credit Union?
A credit union is a financial institution that performs many of the same functions as a commercial bank, including holding deposits in savings and checking accounts, issuing loans, and managing various types of investments. Perhaps the most defining characteristic of a credit union is that credit unions have a non-profit ownership structure.
Instead of being owned by investors, credit unions are owned by their members. Anyone who has an account at a credit union will be considered a member. This gives the patrons certain control, such as voting rights.
Similarities and Differences Between Banks and Credit Unions
As suggested, banks and credit unions will frequently offer comparable types of services. Both these types of institutions allow people to open savings, checking, and other accounts. Other banking functions, such as mortgages, personal loans, credit and debit cards, and business loans can also be found at both businesses.
Similarly, both banks and credit unions offer deposit protection on most accounts. Banks deposits are backed by the FDIC, which ensures all accounts up to $250,000. Credit unions also offer $250,000 worth of protection, which is provided by the Share Insurance Fund (SIF). By law, credit union employees will need to obtain many of the certifications and training as their banking counterparts.
There is a difference in ownership structure. Banks are typically owned by shareholders while credit unions are owned by its members.
They also have slightly different processes as well. For example, in order to open an account at a bank, all you will usually need to do is make an opening deposit. To open an account at a credit union, you will need to apply for membership.
Membership at a credit union will often depend on whether you live in a certain geographic area or are a member of a certain group, such as a union.
Not every credit union is the same, but in order to become a member, you typically need:
- A government-issued ID
- A second form of identification, like a social security card
- A bill with your name and address on it
When joining, you might need to pay a fee or make a donation, usually in the $5-25 range. But after that first charge, you won’t typically be charged a monthly or yearly fee. However, make sure to read the fine print so you know exactly what you need to do to continually qualify for your account.
The Benefits of Using a Credit Union
Typically, credit unions are member-owned and member-run. This means that they can make decisions that are best for their banking members and can have a more personal investment in the situation. As compared to a bank, banks would generally need to make decisions to benefit and please their stakeholders, which could be different than what a member personally needs.
Another benefit of a credit union is that it can usually offer additional perks compared to a bank. Sometimes they can provide individual health insurance and financial advising services. They can also offer free educational classes on financial strategies and other financial-related tips to help their members make smart decisions with their money.
Credit union members also enjoy having the flexibility the credit union has with its members. Credit unions can usually work with members who have bad credit. They also have the flexibility and resources to help many different customers, no matter their financial backgrounds.
Credit unions are generally nonprofit organizations. This means credit unions are not out to only make a profit from their members, so they typically have the members’ best interests in mind. As compared to a bank, banks must make a profit from their members for their investors. In many cases, credit unions have very specific, community-oriented missions.
Another advantage of credit unions being a nonprofit, they can offer their members lower interest rates and lower fees. Because they don’t have to pay out profits to shareholders, they can use the money to offer better rates to their members. This makes it possible for members to keep more money in their accounts.
For example, credit unions are able to offer lower interest rates on mortgages and car loans. They can also offer a higher yield on savings accounts and products, benefiting their members in the long run.
Credit unions also tend to have lower fees than banks, and in some cases, no fees at all. Since credit unions are not-for-profit, they don’t have to worry about making a profit for shareholders, so they can pass on the savings to their members.
Working at a Credit Union
Most credit unions offer a wide variety of job opportunities. In fact, the National Credit Union Administration estimates that there are roughly 3,833 credit unions in the US, employing about 325,000 people (about 80 employees per union). Common roles at credit unions include loan officers, member representatives, auditor, underwriter, investment officer, and many others.
Overall, credit unions offer many benefits over banks, including lower fees, better interest rates, personalized service, community focus, and member ownership. If you’re looking for a financial institution that puts your needs first, consider joining a credit union.
Working at a credit union can offer a different experience than working at a bank, with its own unique advantages and challenges. Credit unions tend to be smaller than banks, with a smaller staff and fewer resources. At OnCourse Learning, we understand the difference. To learn more about our credit-union specific courses, contact us today!