Difference Between a Bank and Credit Union?

secure bankAt first glance the difference between a bank and a credit union may seem insignificant, but depending on your needs there are some pretty significant advantages to belonging to one over the other.

Bank vs. Credit Union

A credit union is a not-for-profit financial institution that is owned by the people who belong to the credit union. Its members are made up of people who share a common bond or affiliate, such as belonging to the same church, school, employer, organization or community.

Since every member is an equal owner and therefore shares a common bond with the other members, the personal experience tends to be much better at a credit union. As co-owner, the credit union works for you to make sure you are happy and have an enjoyable experience. According to Bankrate.com, “Credit unions have topped the consumer satisfaction ratings in American Banker’s annual survey for 12 years in a row.”

Since a credit union’s primary focus is its people, or co-owners, they are more concerned about making you happy than turning a profit. As a result, credit unions typically offer more educational services and seminars to teach you about all financial products so you can make the best decision. Banks, on the other hand, may be more inclined to recommend only those products that bring in higher corporate profits.

As a not-for-profit organization, credit unions have many advantages over banks. They are exempt from most state and federal taxes, do not have many marketing costs, or high salaried executives. This allows credit unions to pass on great rates to their members, including:

  • Higher Interest Rates on Savings Accounts
  • Lower Rates on Auto Loans, Mortgages and Credit Cards
  • Free Checking Accounts
  • Lower or No Penalties for Overdrafts and Late Payments

Your money is also just as safe as with a standard bank since up to $100,000 of your cash is insured and regulated by the National Credit Union Association, which is the same as the Federal Reserve Bank’s coverage.

The down side of a credit union is their conveniences. They will typically have less ATMs, fewer branches, and usually lack variety in investment products and services. Finding and joining a credit union can be a bit trickier too. It may just take a phone call to your human resource department to see what options your employer offers. Otherwise you may have to do a bit of homework, but virtually anyone in the U.S. can join a credit union. Use www.findacreditunion.com to help you do your credit union search.

Banks, on the other hand, are publicly traded, for-profit organizations. Unless you have a personal banker, you generally will not receive the same level of service and satisfaction as you would from a credit union. Rates, fees and penalties will undoubtedly be higher too, but these inconveniences may be outweighed by the benefits.

Banks will have a much larger selection of products for you to choose from, including retirement plans, stock investing programs, and other services not offered by credit unions. Secondly, banks can offer more convenience with more ATMs and more branches, and it is as simple as walking in the door to join.

So when deciding between a bank and a credit union, you have to think about your goals and personal needs. If you want better rates and more personalized service, go with the credit union. If convenience is your number one criteria then stick with a bank for your personal banking needs.

Millionaire Money Habit: While it may take a bit of upfront work to find a credit union that you can join, the service, satisfaction and financial education you can receive may be well worth the effort. It doesn’t hurt to take some time to shop around and ask yourself what’s most important t you in a financial institution. -RT
photo by Innocent Fraud

The Thrifty Scot searches over 500 personal loans in seconds to find you the best deal.

15 Responses to Difference Between a Bank and Credit Union?

  1. Ginny Brady says:

    I am on the board of a small credit union and I’d like to make some other points about credit unions. We know our members and are often able to steer them to products and services that will save them money. In addition, most credit unions today have online services which, in most instances, compensates for the small number of branches we have in comparison to banks. Many communites now have credit unions which now have Community Charters which make it very easy for residents of a community to become a member.

  2. Ryan says:

    Ginny,

    Thank you for chiming – those are very good points to consider.

  3. Jim says:

    Another thing I’ve found about the credit unions in my area are
    that although there are fewer ATMs for your specific credit union,
    most credit unions will allow you to use any credit union ATM with
    no fee for withdraws (not sure how deposits would work) whether you
    are a memeber at that credit union or not. Which almost makes the
    availability of ATMs the same or in some areas better than a bank.

  4. Linda Golding says:

    Just another fact that will allow you more access to your credit union. Many Credit Unions now have a “Shared Branch” service which allows you to enter any credit union in the co-op network and perform many necessary transactions. You can make deposits, take withdrawals and pay loans as examples. You can check out whether your credit union is in the co-op by going online to http://www.CUSWIRL.COM. To access your account in a shared branch you will need the name of your credit union, know your account number and present a valid Government issued photo id; state driver’s license, passport for example. That way if you are not near your credit union or out of town/ state, you can transact business with a shared branch. It is a great service. I love credit unions and would never go back to a bank. My credit union also does offer financial planning and as mentioned above, free financial seminars on a variety of topics: Retirement, Reverse Mortgage, Real Estate to mention a few. I think if any of you reading this article would generally enjoy a relationship with a credit union.

  5. Caroline B says:

    Thank you very much for this information! Can’t wait to open an account with a credit union. =)

  6. drwtsn says:

    I’ve been “banking” with a credit union for about 30 years, and have never had a single complaint with their services. The tellers know me by name, the office people could not be more informative or friendly, and the “ATM services” seem to be more than adequate,though I rarely use them since I like the “personal experience.” I can’t imagine anyone needing a for-profit bank in this day and age.

  7. Cap says:

    The biggest difference between a bank and a credit union has to do with taxation. Banks pay their share of taxes of all types; income, property, regristration, etc. Credit union hide behind their “non-profit” status to avoid paying their cost of doing business. In our local area, the highest rates on savings and CD’s are the community banks. Loan rates are nearly the same, although the credit union is slightly lower. But the loan rate difference would be flipped inversely if the banks did not have to pay taxes. Do not just take my word for it, inquire as to how much your bank or credit union pays in taxes. It will be eye-opening.

  8. At CAP says:

    Wow CAP, you sound like you are angry at credit unions saying they “hide behind their ‘non-profit’ status to avoid paying their cost of doing business.” Speaking of “cost of doing business,” what about us tax payers footing the bill ($Billions) for BANK bailouts?
    http://www.cbsnews.com/stories/2010/04/23/politics/main6426114.shtml
    Is that fair?
    Oh, and if you say we the taxpayers are bailing out the credit unions too, you’re right. We are, but at a cost of $0.
    http://www.foxnews.com/politics/2010/09/25/bails-major-credit-unions/
    http://online.wsj.com/article/SB10001424052748703499604575512254063682236.html
    The real problem is not how much taxes one person or entity pays, but how much the local/state/fed government continues their free spending of my hard earned money. They blow it, they barrow more and blow that and leave us taxpayers on the hook when the bill comes due. A thief robs us once and only takes what we have, and they call that illegal. The government robs us every payday, and by borrowing, steals from our future too, yet that’s legal.
    Those being the facts they are, I say let the “legality” work in our favor for a change. If credit unions can legally avoid taxes, so be it.

  9. Bonnie says:

    There is a myth out there that credit union don’t pay taxes. This is completely incorrect. Credit unions pay all the same taxes as banks and other corporations. They only get a break from paying income taxes.

  10. At Cap from an ex-auditor says:

    Generally the services Credit Unions offer are very similar, and at very competative rates. Sometimes CUs are higher, and sometimes Banks are higher. They both pay taxes but since profits are given back to the members, even if they did pay income tax it wouldn’t be much. (unlike some of our countries the largest banks) Credit Unions are also limited in how much they can market, while banks can spend whatever amount they’d like to send you whatever message they want you to hear, and are allowed to make as much money off their customers as they can (and they do this well!). You can use ATMs from all different credit unions with out fees too, not just your credit union’s ATMs.

    The primary difference is the reason for existance – Profit/Non Profit, that is the difference. Banks exist to enrich it’s shareholders (who may or may not be customers), while Credit Unions need make enough to pay salaries and keep the lights on. Any extra money made is returned to the members (skip payments, special rates on vacation loans, etc). Rarely did I ever see salaries/bonuses of Credit Unions employees even come close to those paid by banks, and in my humble opinion, people working at credit unions honestly cared about their members, and would frequently make an exception to loan a member money (within the policies set by the board), while banks rarely extended this courtesy.

    All in all, you’re free to give your business to whom ever you choose, but I’d take the word of a credit union over a banker any day, as well as a loan. Some bankers can be ok, but I’ll continue to give my business to someone who isn’t out to make a buck for shareholders I don’t know or trust.

    Btw, I spent my first career as an auditor of both Credit Unions and “for profit” banks. It was my experiences are the last bank that made me quit and switch careers.

  11. lola zue says:

    works for you to make sure you are happy and have an enjoyable experience. According to Bankrate.com, “Credit unions have topped the consumer satisfaction ratings in American Banker’s annual survey for 12 years in a row.”

    Since a credit union’s primary focus is its people, or co-owners, they are more concerned about making you happy than turning a profit. As a result, credit unions typically offer more educational services and seminars to teach you about all financial products so you can make the best decision. Banks, on the other hand, may be more inclined to recommend only those products that bring in higher corporate profits.

    As a not-for-profit organization, credit unions have many advantages over banks. They are exempt from most state and federal taxes, do not have many marketing costs, or high salaried executives. This allows credit unions to pass

  12. John says:

    After 20 years in the military (retired) and 10 years working as a teacher, waiter, and finally unemployed. I feel that the Credit Unions serve the public way more than any bank. I have been a member of BOA, CHASE, HERITAGE, VIRGINIA BANK, ETC. and every one of those banks only made money out of the money I was trying to save. I now use only one bank (to pay bills) and my savings go directly to Credit Unions. It’s my way of saying to the banks: (Back at ya).

  13. hecate says:

    one that isn’t a BANK! Screw the Federal Reserve and the pigs’ back it rode in on. I want my government back.

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