Credit Union vs. Bank: How to Choose a Financial Institution

When people think about money, particularly saving it, paying bills, earning interest, banks are certainly the first place they choose. But banks are not always the best place to keep your money. Lifehacker talks about 5 benefits of credit unions.

While the number of credit unions has declined over the years (there are currently about 4600 insured credit unions nationwide), membership has grown steadily, reaching nearly 140 million depositors as of last year.

There are several very good reasons why more and more people are joining credit unions.

Key Differences Between a Credit Union and a Bank

At first glance, credit unions look just like banks. They offer the same services, including checking and savings accounts, loans, and other financial products.

The difference between a bank and a credit union is that the latter are considered non-profit because they work to serve their members, and banks generate profits for shareholders.

Unlike a charitable or other non-profit organization, credit unions do not rely on donations.

Like financial institutions, credit unions create profits from an economic point of view in order to continue working and generate additional profits for their members.

In other words, the bank takes your money, invests it, and pays you a criminally tiny amount. amount percent for this privilege. The credit union reinvests any profits into its members and the community.

On the subject: How much do you need to earn to be considered middle class in New York?

Another difference is who uses them. Banks are open to everyone, although they may close an account or refuse to open one under certain circumstances. Due to restrictions, it is not easy to become a member of a credit union. You must either belong to a certain group (school, church, community) or be associated with someone in one or another group. If you are able to qualify for membership in a credit union through your job, family, profession, or community, it is worth it, as membership in a credit union provides great benefits.

Like banks, credit union funds are federally insured up to $250, but the insurance is administered by the NCUA instead of the Federal Deposit Insurance Corporation (FDIC).

In practice, credit unions operate much like banks. But their nonprofit orientation and community focus offer several key advantages.

These benefits make joining one of them a very good idea.

Benefits of Joining a Credit Union

Credit unions offer several advantages over banks:

• higher savings ratesBecause credit unions use profits to benefit their members, they almost always offer significantly higher rates on savings accounts, CDs, and other financial products;
• lower interest rates on loans. Credit unions tend to offer better terms on loans and mortgages, including 15- and 30-year fixed-rate mortgages. Their used-car loans are significantly better — the average interest rate on a 48-month used-car loan at a credit union is about 1,5 points better than at a bank;
• lower fees and lower minimum rates. Credit unions typically offer lower fees than banks. For example, checking accounts can be 79% cheaper at credit unions than at national banks, and 54% cheaper than even at small community banks;
• community and voice. The most important aspect of a credit union is that you become a co-owner when you join. This gives you a voice in terms of choosing board members, setting policies, and influencing where the credit union invests its funds. This means that credit unions tend to be much more community-oriented than banks, and are more willing to lend to small businesses;
• flexibility. Because you are a member (and co-owner) of a credit union, you often have a much easier time getting loans or special financial arrangements than you would through a bank. That doesn't mean there are no requirements or that credit unions just hand out money. But they are often more willing to work with their members despite low credit scores or other issues that banks won't deal with.

Disadvantages to Consider

One of the disadvantages of a credit union to consider is the ATM network. Some credit unions do not have much access to ATMs. Many credit unions are members of third-party ATM networks, such as Allpoint or MoneyPass.

While credit unions offer many benefits, there are circumstances where banks are certainly your best option. Banks tend to offer more services. And because credit unions have membership requirements, you may not be able to find one that you can easily join. Large banks offer national (and possibly international) coverage, as well as more reliable and secure online tools than some credit unions.