Credit Unions vs. Banks
When deciding between a bank or credit union, you will want to consider several factors based on what each offers and which aligns most with your needs. Although they are similar in their overall function, and both provide high levels of security, there are subtle differences between the two that can make a big difference. Certain elements may resonate more with your financial aspirations.
This comprehensive comparison of the differences between credit unions and banks defines what each is and breaks down the points that define the nature of and type of service you might expect from each.
What Is a Credit Union?
Are credit unions banks? No.
Although there are evident similarities, and they offer many of the same products, features, and services, credit unions are not banks. Here's how credit unions are different from banks.
Shareholders vs. Cooperative
When it comes to banks vs. credit unions, one of the biggest differences is structure. Banks are for-profit and the shareholders’ benefit, while a credit union is a not-for-profit financial cooperative. The credit union is owned by its members (anyone with an account) and all members benefit, not just a small group of owners. Profits earned by the credit union are shared with member-owners through lower loan rates, higher dividend rates, new products and services, fewer or no fees, etc.
People Helping People
While banks can serve anyone, credit unions serve a defined group of people based on a common bond, such as employment or specific community. Credit unions were born out of a need for fair and affordable financial services in the mid-1800s. This philosophy of people helping people and affordable services is still the guiding principle for credit unions today.
Are credit unions safer than banks?
Although credit union and bank deposits are equally insured and backed by the government, credit unions have never required a government bailout due to collapses like the Savings and Loan failure of the 1980s or the more recent bank bailouts. Therefore, credit unions could be safer than banks. Credit unions may expose themselves to fewer risks than traditional banks, as they aren’t pursuing shareholder profits but looking out for their members' benefit.
Credit Unions vs. Banks: The Primary Differences
You will notice key similarities, including that banks and credit unions offer checking accounts with unique perks, a wide selection of personalized loan solutions, and various other services, including wealth management and retirement saving, to help secure your financial future. However, there are critical differences.
Institution Details and Types
Credit unions are member-centric not-for-profit institutions owned by their members who share an associational common bond. As owners, members of credit unions typically make decisions democratically for the best interest of their entire membership. This also means credit unions tend to have better rates and low to no fees. Many credit unions pride themselves on improved and more personalized service, which is often more attentive than banks.
Banks are owned by their shareholders with the sole intent to maximize profit, resulting in less client-centric focus, often leading to costlier interest rates and fees. The decision-making is centralized, and there is often limited input from account holders. The service offerings from banks are typically more standardized, and there is less emphasis on personal connections or the needs of individuals.
However, due to the structure of banks, they can service a broader range of customers depending on whether they are local or national. Interestingly, 94% of banks are still considered small businesses in America.
Membership Requirements
Credit unions have a defined field of membership (FOM), which is approved by the National Credit Union Administration (NCUA) for federal credit unions or the Bureau of Financial Institutions (BFI) for state chartered credit unions. This is called the common bond or the FOM and can require members to share something in common, often a geographical area.
Banking institutions do not have membership requirements, and anyone can open account if they meet the minimum requirements to open the desired account.
FDIC vs. NCUA
In addition to a credit union's security measures or those of a local or national bank, two larger bodies play a vital role in insuring your hard-earned funds — the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA). Depending on whether you select a credit union or bank, you will see that your deposits are insured by one or the other:
Banks: Most traditional banks are insured by FDIC deposit insurance, which insures your deposited funds up to $250,000 and protects you in case of a bank failure.
Credit unions: Credit unions are covered by NCUA, which acts similarly to the FDIC and offers deposit insurance up to $250,000 to protect you if the credit union fails. The NCUA insures all federal and many state credit unions, and you can easily research a credit union on the official NCUA site.
Who Profits?
Because credit unions are not-for-profit, they can provide their members with the best possible interest rates and lowest fees instead of prioritizing profits.
Shareholders own banks, which are for-profit organizations. They aim to offer appealing rates to account holders while seeking the highest possible margins to maximize profits. You will likely find less favorable interest rates and banking fees while potentially experiencing lower customer service.
Customer Service
Credit unions can offer an increased focus on personalization and higher quality service compared to banks since they are member-centric and cater to the needs of their membership, which is all of their member-owners.
Although banks can provide exceptional service, their service tends to be more standardized and less personal. Additionally, banks tend to focus on big business and/or commercial lending to maximize profits, which means they cannot hone in on their individual account holders' service and product requirements like credit unions do.
Interest Rates
The credit union and bank rates comparison by the NCUA shows the annual and quarterly averages for lending and spending. It outlines another means of how credit unions are different from banks.
Credit unions tend to offer higher returns on their deposit financial products while providing noticeably lower interest rate charges. The 2023 comparison shows credit unions offer noticeably higher average rates on certificates of deposit (CD) and money market accounts.
During that financial year, banks offered higher rates on savings accounts and checking accounts, though this fluctuates. Moreover, banks tended to charge higher interest rates for credit cards, both new and used car loans, fixed-rate mortgages, and other loan services.
Community Involvement and Local Impact
A small local bank branch, with most of its clients and account holders from the surrounding area, may wish to brand itself as the preferred local bank and, therefore, have a financial incentive to invest in the local community.
Conversely, credit unions are naturally vested in local community involvement and the people helping people philosophy. All credit unions host an annual credit union meeting to share important information with their member-owners. Credit unions partner with local organizations to uplift, engage, and enrich the local community and its members. Some credit unions also offer education programs to provide added value to their members and community.
Join Blue Eagle Credit Union Today
So why bank with a credit union? Because you deserve a five-star experience that only comes with a credit union that offers modern conveniences and a human touch.
At Blue Eagle Credit Union, we serve the greater Roanoke and Lynchburg, Virginia areas, focusing on specific cities and counties, including Altavista, Amherst County, Appomattox County, Bedford County, Botetourt County, Campbell County, Craig County, Franklin County, Roanoke City and Roanoke County, Lynchburg City, Salem, and the town of Vinton. Make an appointment to open account at one of our locations or take advantage of our virtual services to discuss your financial aspirations and service needs.
Alternatively, you can open an account online with us in a few quick and easy steps today! With Blue Eagle Credit Union, you Pay Less. Earn More. Have Fun.®
