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By Katie Pins
Everyone knows what a bank is, but what do you know about credit unions? Credit unions are growing in popularity, according to the Credit Union National Association (CUNA). So, why are people moving their finances out of big banks and into credit unions? What’s the difference between a bank and a credit union? We address some of the biggest questions and misconceptions about the differences. Here is banks vs. credit unions:
Credit unions are open to the public in a different way than banks. In order to use a credit union’s products, you must qualify for membership. That membership, however, isn’t purchased with an annual fee.
Different credit unions require different qualifications. The most common ways to qualify for a credit union is through your place of work or the place you live. However, some credit unions offer other ways for the public to become members.
At Alliant, you can qualify for membership in five different ways. You can be an employee/retiree of a qualifying company or a member of a qualifying organization, you can live or work in a qualifying Chicagoland community or you can become a member of Foster Care to Success.
A common question people ask themselves is, "Am I limited to credit unions near me?" The answer is no. Because of the various qualification and online banking opportunities that many credit unions offer, location is less of a factor now.
Banks do not have qualifications like credit unions do. They are open to the public and call their depositors customers.
A major difference between banks and credit unions comes down to who owns the financial institution. At a bank, stockholders are the owners. That means banks answer to their stockholders and have a fiduciary duty to those stockholders. They do not have the same obligation to their customers. At a credit union, members are the owners. That means a credit union answers to its members. Membership represents a share of ownership. Credit unions take pride in serving their members’ best interests.
No, credit unions are not-for-profit financial institutions. So where do the profits go? They go back to the credit union’s members through better rates on deposit products and loans.
Credit unions operate on a lean but efficient model so their members can enjoy the benefits. Like I said above, banks are owned by their stockholders. This means they’re driven to make profits for those stockholders. That’s a great business model if you’re a stockholder, but it might not be best for you as an account holder. If you belong to a credit union, on the other hand, you’re a member-owner and get a share in the profits through great rates.
At banks, your deposits are insured by the Federal Deposit Insurance Corporation (FDIC), a branch of the federal government, up to $250,000. At credit unions, credit union members' deposits are federally insured up to $250,000 by the National Credit Union Administration (NCUA), also a branch of the federal government. In short, deposits in both institutions are insured by the federal government for the same amount.
Fees irritate me. I’ve never understood why I would pay for a checking or savings account. If you’re like me and want to avoid unnecessary fees, where should you go? A recent study by DepositAccounts.com found that credit unions have lower checking account fees than brick-and-mortar banks. For example, the national average ATM fee for banks was $2.41 compared to $1.46 for credit unions. If you look at Alliant specifically, we don't charge ATM fees, have over 80,000 fee-free network ATMs and offer ATM rebates up to $20/month for checking account debit card users, so ATM fees could be a thing of the past. Why are fees lower for credit unions? You probably guessed it. Fees usually are lower at credit unions because their customers are their members, and those members are the owners.
When it comes to the difference between banks and credit unions, the most important thing to remember is that credit unions are owned by their members. This means you’ll usually find better rates and lower fees at credit unions. Wherever you choose to keep your savings or get a car loan, you want to know that you’re getting some of the best rates. Do your homework and “bank” at the financial institution that fits your needs best. The benefits of a credit union will be continuously rewarding.
Katie Pins is a marketer fascinated with finance. Whether the topic is about the psychology of money, investment strategies or simply how to spend better, Katie enjoys diving in and sharing all the details with family, friends and Money Mentor readers. Money management needs to be simplified and Katie hopes she accomplishes that for our readers. The saying goes, "Knowledge is Power", and she hopes you feel empowered after reading Money Mentor.