October 29, 2024

Credit Unions vs. Banks: Which Is the Better Choice for You?

Credit-Union-vs-Bank
If you have money you’d like to place in a savings account or need to take out a loan, figuring out which financial institution you’d like to work with is tough enough. But to start, you have to decide between a bank or a credit union.
But what is a credit union versus a bank? Is a credit union a bank? Are credit unions better than banks? Deciding between the two might feel overwhelming, but knowing the differences between a credit union account and a bank account can help you make the right financial decision. In this guide, we’ll clarify the differences to help you determine if a bank or credit union would suit you better.

The differences between banks and credit unions

While banks and credit unions have overlapping functions, they do have differences. The biggest one is how they operate.
Credit unions are nonprofit, meaning they aren’t owned by investors trying to make a profit. Instead, the members of the credit union (the account holders) are partial owners. They form a community and have a say in how the union works. Any earnings on investments go toward offering lower fees, higher interest rates on savings accounts, and lower interest rates on loans.
In contrast, banks are for-profit organizations that make money for shareholders. This puts their focus more on profits than the account holders — resulting in higher fees and less importance placed on customer care.
One thing traditional banks typically have that credit unions don’t is an extensive network of branches (physical locations) and ATMs, offering more access and convenience. For added convenience, their online banking platforms often have more features and are easier to use. They may also offer more financial services, like high-end investment products and credit cards, and a wider variety of banking products for businesses.
While banks may focus on wider access and services, credit unions focus on wider benefits for the individual account owners. For example, credit unions’ nonprofit status allows them to offer higher interest rates on saving accounts and lower rates on loans and credit cards. Banks, with overhead and profit margins to consider, typically can't match these rates.
What’s trickiest about credit unions versus banks is actually opening an account. Typically, you must meet specific membership requirements to join a credit union, like living in a certain community, working for a certain employer, or having an affiliation with a certain group or organization. Banks, on the other hand, are generally open to anyone.

Credit unions: Pros and cons

Credit unions offer a unique approach to banking and member-centric services. Here are some of the standout benefits of choosing a credit union versus a bank, as well as some of the disadvantages.

Pros:

Cons:

Banks: Pros and cons

Traditional banks, with their extensive networks and diverse service offerings, also present a set of pros and cons worth considering when choosing a financial institution.

Pros:

Cons:

The similarities between banks and credit unions

Banks and credit unions both offer services like money market accounts, checking and savings accounts, mortgages, and auto loans. They also handle your everyday banking needs, from depositing your paycheck to lending money for significant purchases.
To protect your money, both types of institutions hold government-backed deposit insurance. Having an insured account means you can rest easy knowing you’ll receive up to a set limit (currently $250,000 per depositor per bank) as reimbursement if your chosen institution comes up against some financial setbacks and loses any of your money. While the Federal Deposit Insurance Corporation (FDIC) insures banks, the National Credit Union Administration (NCUA) insures credit unions.
No matter which institution you choose, both banks and credit unions usually offer online banking platforms and mobile apps. With these tools, you can check your balance, transfer money, and more with your computer or phone.

Credit unions vs. Banks: How to choose

To decide which of these two options is best for you, you need to consider your needs and preferences. Here are the four key factors that could sway your decision:
If you want to keep your fees down and have better interest rates and more say in day-to-day operations, you might consider a credit union. As a member, you'll enjoy lower fees, a higher APY rate on your savings account, and more personalized service.
On the other hand, if you're more concerned about convenience and your variety of options, a traditional bank may be the way to go. They can offer more money-related offerings, more branch locations and ATMs, and usually better technology — meaning you can choose from more financial services and track and access your money more easily.
Ultimately, there’s no right or wrong answer about which financial institution to choose — it all depends on your personal wants and needs for managing your money.

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Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.
1. EarnIn is a financial technology company, not a bank. Subject to your available earnings, Daily Max and Pay Period Max. EarnIn does not charge interest on Cash Outs. EarnIn does not charge hidden fees for use of its services. EarnIn services may not be available in all states. Restrictions and/or third party fees may apply. For more info visit earnIn.com/TOS.

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