Banks vs Credit Unions: Are They Created Equally?

Banks and credit unions offer safe alternatives to keeping your money in cash within your home. Along with security, both banks and credit unions offer benefits to their customers and members. Is there a difference between a bank and a credit union? Does it really matter, in the long run? The answer to these questions is simply, “Yes.” Many people think that a bank and a credit union are the same thing, but this is very far from the reality of the institutions. Banks and credit unions differ in many ways, and making a poor choice for your financial institution may have a negative impact on your wallet. With many options for both banks and credit unions to consider, deciding where to open an account may require consumers to find some inside information.

Banks are by far the most popular choice in financial institutions. They are typically run by a group of investors. Since investors fund the bank’s operation with their own money, the primary interest of a bank is to create a return on this investment–to make money for the group. This is evident in the tendency for banks to charge exorbitant fees for their account holders, including penalty and monthly maintenance fees simply for having an account. The decision-making process for the operations of banks is conducted by the investors and is usually designed only with profit in mind. Typically, no voice is given to individual account holders during policy making.

By contrast, credit unions are member-driven, nonprofit entities that serve specific groups or neighborhoods. Each account holder pays a membership fee that directly funds the operations of the credit union. A credit union employs a democratic method of decision-making, with an elected board of directors that handles all policy making within the company. Account holders at credit unions are treated as an asset to the institution, but banks may treat their customers as account numbers by which to generate money. Penalty fees may be enforced at a credit union, but they are typically much lower in cost than those of banks, because these institutions are not profit-driven. There is no maintenance fee for a credit union account.

Both banks and credit unions are safe, secure locations to store and save money. Both offer savings and checking accounts, and many credit unions offer bank amenities such as mortgages, auto and small business loans and credit cards. Credit union members enjoy high interest rates on savings accounts and low interest rates on loans, but the drawback is that very few credit unions have nationwide access.

With their broad scope, banks make banking on the go much easier for those who travel outside of their hometown. Many people opt to hold savings and loan accounts with credit unions while using a traditional bank for their checking accounts. This combination allows the high-interest savings and the discount loan rates of credit unions along with the nationwide access of banks, giving consumers who choose this option the best of both institutions.

Sara Woods of debtmanagement.org.uk, is the author of this article, where you can find all the help and support you need to manage your debt and personal finances.