Similarities between credit unions and banks
Also, any deposits you make at either a bank or a credit union are insured by a branch of the federal government for up to $250,0001 per depositor. It's worth noting that the organization that insures the money at banks is different from the organization that insures deposits at credit unions. The National Credit Union Administration (NCUA) protects the money at credit unions while the Federal Deposit Insurance Corporation (FDIC) protects the deposits at banks.
Differences between credit unions and banks
There are more differences between banks and credit unions than there are similarities. Most notably, the two types of financial institution have considerably different missions and purposes.
Credit unions exist to serve the needs of their members. Credit unions are nonprofit financial cooperatives. Any earnings are paid back to the members of the credit union in the form of lower interest rates on loans and higher interest rates on savings accounts. Banks, on the other hand, are for-profit and pay earnings to stockholders of the bank only.
Another notable difference between credit unions and banks is that people who open accounts at credit unions are called members, while people with accounts at banks are customers. Credit union members own a portion of the credit union, while bank customers do not own the bank.
A spirit of cooperation pervades most credit unions, which also sets them apart from banks. Cooperation is one of the guiding principles of credit unions and other cooperatives and it's what encourages the sharing of resources to make life more convenient for credit union members. An example of cooperative spirit is the Shared Branch Network, which provides members of credit unions with access to more than 5,400 full-service branches across the US, more than 30,000 ATMs in the U.S. and Canada and more than 800,000 ATMs around the world.
There's one more difference between credit unions and banks. Taxpayer money has never been used to bail out a credit union. The Savings & Loan bailout in the 1980s and the bailouts of banks that took place during the recent recession both used taxpayer money.
Credit union benefits
Still need help deciding between a credit union and bank? Some of the benefits of a credit union include:
- Lower interest rates on loans.
- Higher interest rates on savings accounts.
- Access to online and mobile banking.
- Commitment to and investment in the local community.
- Members are owners of the credit union and have a say over how it is operated.
Making the SmartMove from a bank to a credit union doesn't only help you earn more money on your deposits and save money on loans. It also gives you a chance to give back to and strengthen your community.
Sources:
1. //www.ncua.gov
2. //www.oklahomacentral.creditunion/Credit-Union-vs-Bank
Run » Finance
Banks vs. Credit Unions: What’s the Difference?
Should you manage your business finances through a bank or a credit union? Here are the differences and what to consider when making your choice.
As a business owner, it’s important to have a separate financial account to manage your business-related income and expenses. While some entrepreneurs choose the same institution where they manage their personal finances, you may wish to explore your options, including whether you go with a bank or a credit union.
Before you make your decision, it’s important to understand what banks and credit unions offer their customers and how that aligns with your business’s financial goals and circumstances. Here are the major differences between these two financial institutions and how to determine which is right for your business.
Banks are for-profit institutions owned by investors and are obligated to deliver a profit to their shareholders. If you belong to a bank, you don’t have a say in their operations or procedures.
Pros of a bank
- Banks have multiple branch locations and ATMs.
- Banks can be utilized for both personal and business banking solutions including business loans.
- Banks offer robust investment services and savings vehicles including Individual Retirement Accounts (IRAs), money marketing accounts and certificates of deposit.
- Banks may have more advanced technology for customer use.
[Read more: How to Apply for a Loan]
Credit unions
Credit unions are owned by their members as not-for-profit organizations, which means people who use their financial services are more involved in credit union operations.
Pros of a credit union
- Credit unions usually have the lowest interest rates on loans, which can be a great option for businesses planning to open a brick-and-mortar location.
- For savings products, credit unions may provide higher interest rates than banks.
- You’ll find a credit union usually doesn’t require a membership fee or monthly service charges.
Members of a credit union are part owners of the institution while investors of banks are part owners and have a say in how the bank is run depending on their number of shares.
Key differences between banks and credit unions
As mentioned above, the key difference between banks and credit unions is that banks are for-profit institutions that provide profits to their shareholders while credit unions are run by their members. Additional differences between banks and credit unions are:
- Credit unions may have low-interest rates on loans and lower fees than banks.
- Members of a credit union are part owners of the institution while investors of banks are part owners and have a say in how the bank is run depending on their number of shares.
- Credit union deposits are insured by the National Credit Union Administration while banks are insured by the Federal Deposit Insurance Corporation.
- Although independent community banks exist, these institutions are more often based regionally or nationally, while credit unions tend to be more local.
[Read more: How to Protect Your Business Bank Account]
Which is right for your business?
There are many factors to consider when choosing the bank or credit union that will be the best fit for your business.
A credit union is a great option for business owners who are eligible for a membership that exists in their community. If you need low fees and lower interest rates and your banking needs are limited or you’re not required to be near a physical branch, a credit union may be worth joining.
If you need a wide variety of banking services and are planning to do your banking at a physical location, a bank may be the better option for you. A digital bank is also an option for those who need access to many banking services but would like to do their banking online.
Learn more about managing your business finances in our guide to accounting basics.
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Published January 28, 2022