Where you decide to deposit your money can have a big impact on your finances. Between interest rates, loan terms, and physical locations, there are plenty of differences between the types of financial institutions that will accept your deposits. Both banks and credit unions can serve as safe destinations for your checking and savings accounts. So, where should you place your money?
There are numerous similarities between banks and credit unions, though there are some key distinctions as well. Learning about how each of these types of financial institutions functions can help you determine which one is right for you.
What Are Banks?
Retail banks are financial institutions that accept deposits and allow withdrawals. They help individuals manage their day-to-day finances and provide loans and other financial services.
Not to be confused with commercial and investment banks that cater exclusively to the business community, retail banks are geared towards individuals, families, and small businesses. They can vary from large corporations with thousands of branches to individual, stand-alone institutions.
Retail banks accept savings deposits from customers while providing loans and financing to individuals, households, and small businesses. They offer checking and savings accounts, along with certificates of deposit. Retail banks will also offer debit and credit cards, as well as mortgages, home equity loans, and other types of financing.
Deposits at banks are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000, giving you peace of mind that your money is protected by the full faith and credit of the U.S. Government.
What Are Credit Unions?
Credit unions are very similar to retail banks, and most will offer a similar set of financial services. They will cater to a specific set of clients who must become members of the credit union in order to access their financial services.
To become a member, you must either live in a certain geography, be part of a particular profession, or pay a membership fee. Once you are in, however, you are not just a member. Joining a credit union will make you an owner as well.
Credit unions are owned by their members and operate as non-profit entities. Each member–or owner– has one vote for the Board of Directors, regardless of the amount of assets they have deposited at the credit union.
Credit unions generally offer the same types of financial services as banks. Deposits at credit unions are also insured by the U.S. Government, most of them by the National Credit Union Association (NCUA) for $250,000 (the same coverage provided by the FDIC).
What Are the Differences Between Banks and Credit Unions?
The largest difference between banks and credit unions is their ownership structures. Whereas banks are owned by shareholders, credit unions are owned by their members.
The fact that credit unions are not driven exclusively by profits has the advantage of allowing them to charge lower fees in many cases. Unlike banks, which have the fiduciary responsibility to maximize shareholder profits, credit union revenues are passed back to owners. This can be in the form of lower interest rates and lower fees on loans, along with higher savings rates on deposits.
However, banks do offer some significant advantages over credit unions. The largest retail banks have thousands of branches nationwide, allowing you to easily access your accounts or meet with a banker throughout the country. Some credit unions are part of a larger national CO-OP Branch Network, which is made up of credit unions that offer a number of reciprocal financial services for members. Still, credit unions cannot compete with the size and scale of the larger retail banks.
In addition, banks can sometimes offer more services than your standard credit union, including options for making international transactions and more advanced online interfaces. The credit card rewards and points programs will also tend to be better at banks, as credit unions are more focused on charging lower interest rates and fees.
Here’s another item to consider: online-only banks may be able to provide higher savings rates as well, since they do not have to manage physical properties the way bricks-and-mortar institutions do.
Which Financial Institution Should You Choose?
At the end of the day, your choice of financial institution will depend on your priorities.
Credit unions–especially ones that are located in close proximity to your work or home–can certainly offer a unique set of advantages. Credit unions often offer a more personal touch, along with better savings rates, cheaper loans, and lower fees.
Banks, on the other hand, are generally able to offer more sophisticated financial products. The largest banks, in particular, have a rich variety of products, services, and access.
In many ways, the choice boils down to what you are most comfortable with, and your current needs. If you are “staying local” and your financing needs are fairly standard, joining a credit union could be a great fit. On the other hand, if you regularly conduct business abroad and are looking for a slew of cutting-edge financial products, going with a national bank for your retail needs might be a better match.
Conclusion: The Choice Is Yours
Though there are some general differences between retail banks and credit unions, the exact differences will depend on your individual institution.
Some retail banks may be able to offer you the rates you desire, while your credit union of choice could provide all the services you are looking for.
As you shop around for the best place to deposit your money, take some time to understand the various offerings from each type of institution. Understanding whether the bank or credit union you are considering will be able to meet your needs will help you to make the right choice.
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