There are many points in your life where you need to make financial decisions. Whether you are looking to save your hard-earned money, buy a house, or even a car, you must first decide which institution is right for you. And, before mulling over the finer details of individual financial institutions, you should also understand whether a bank or a credit union best meets your needs and what makes them different. Here are the top differences between banks and credit unions to help you compare.
Banks are for-profit institutions owned by their investors, who are stockholders in the company. Each stockholder has several votes to elect board members, which is relative to their investment in the company. While these shareholders do not necessarily bank at the institution, they hold stock in, they aim to return investment from their stock, so have a financial incentive. The board members at banks are typically paid, employees.
In contrast, credit unions are not-for-profit financial cooperatives owned by their members. As with any cooperative, membership alone makes you a part-owner of the company. Regardless of how much money you have in your account, your initial deposit gives you one vote in electing board members. These board members are volunteers and are members of the credit union. Any profits generated are given back to members in the form of lower loan rates, higher interest rates on savings, and low fees. In fact, this is one of the founding reasons credit unions were started – to offer affordable credit and financial services to help people within their own community thrive. That’s one major reason many credit unions are known for their contribution to the local community outside of their products and services. Although banks certainly also support their communities, it’s typically less of an internal cultural priority than within credit unions. At FOKFCU, we are dedicated to making Oklahoma a better place to live. Through charitable contributions, employee volunteerism, and community outreach & financial education, FOKFCU cares about the people we work with and for.
One of the major allures of a bank is that nearly anyone can become a customer. If you can meet their minimum deposit amount and financial criteria, you can open an account or apply for a loan.
Eligibility to become a member varies by credit union. Some qualifying conditions of joining a credit union include where you work or what industry you work in, membership in an organization, where you live, where you go to school or worship, or a family member’s eligibility. For example, at FOKFCU, you can qualify to be a member if you live or work in the Tulsa area.
Banks and credit unions tend to have similar financial offerings, including business and personal checking and savings accounts, certificates of deposit (share certificates), and loans. Many banks boast diversity within their account divisions, such as specialty savings accounts but most larger credit unions provide a range of financial products and solutions, and smaller credit unions generally offer less variety and frills in their accounts and loans, however, they are designed to be affordable for members.
Since credit unions were created to be able to offer lower rates and fees on products like mortgages and auto loans to members of the community, many people join a credit union to take advantage of a low auto loan rate while maintaining their checking account at a bank. However, if you do want to bank with a credit union, know that due to their non-profit status, they are generally able to offer lower minimum balance requirements on checking accounts and low to no service charges.
In contrast, banks need to turn a profit, and often charge higher fees on less profitable types of accounts (like checking accounts) while offering lower interest rates on savings, unless you have a large sum of money you can deposit. Additionally, banks often offer better credit card rewards but typically charge an annual fee.
Credit unions typically belong to a network that offers rewards on credit cards, like cash-back rewards, and often don’t charge an annual fee for a credit card. Mike Schenk of the Credit Union National Association said that the average late-payment fee at a bank is $35 compared to $22.50 at a credit union.
These days, both banks and credit unions understand the importance of convenience, technology and customer service to their customers and members. Larger banks and credit unions will generally have more branch and ATM locations, while associated fees will vary by institution. And most institutions are part of nationwide ATM networks that allow people to access their money wherever they are. Additionally, most institutions offer convenient technology including online and mobile banking, though specific offerings will be different for each bank or credit union.
Finally, most institutions will have a variety of ways to get support – from robust website offerings like chat, forms, and FAQs, to phone and branch support. Smaller banks and most credit unions are generally better known for more personal customer or member support, but like most other industries, true customer service policies and commitment will vary across institutions.
Banks are regulated by several state and federal agencies: The Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency. On a local level, there are state banking regulators for state-chartered banks.
Credit unions are regulated by the National Credit Union Administration (NCUA) on the federal level. NCUA is also responsible for the National Credit Union Share Insurance Fund (NCUSIF), which ensures all federal credit unions and most state-chartered credit unions. State-chartered credit unions can also be regulated by state agencies.
Both the FDIC and the NCUA are backed by the U.S. government and provide protection up to $250,000 per account holder per institution. Some banks and credit unions choose to be insured by private companies, which means they’re not required to insure your deposits by state or federal law.
With all these factors, how should you choose the financial institution that’s right for you? Take into consideration your tolerance for fees, rates, financial product offerings, how often you need to access an ATM or branch, and how your money is put to work within the community. If you have any questions about the differences between banks and credit unions, or would like to learn more about FOKFCU and how you can become a member, contact us today.