Credit unions and banks allow people to open a financial account to keep their money and even borrow loans safely. You might find it challenging to distinguish between a credit union and a bank since both provide approximately similar financial services. Here are the critical distinguishing components of banks and credit unions that will enable you to make the best choice.
Ownership
Banks and credit unions differ in terms of the tax-status of the institution and defined as either profit or non-profit oriented. Investors own the bank, and it is a profit-oriented institution, while credit unions are non-profit oriented and controlled by its members. The benefits gained from the bank is returned to the stakeholders as earnings. Banks generate profits by charging high rates and fees to the best interest of its stockholders.
Since credit unions are non-profit oriented, they offer incentives at low charges and return earnings to members through low-interest rates on credit cards and loans. Additionally, members of credit unions enjoy higher rates on savings. Any amount that credit unions get above the desired amount is divided equally among all members after every financial year. Banks must pay federal and state income tax where the surplus is used to provide investors with promising financial returns.
Membership
Banks do not set restrictions for opening an account, while credit unions membership necessitates a customer base. Credit unions require you to become a member of a school, geographic location, an organization as a worker, or a house of worship. Credit union members have the power of voting that account holders of a bank do not have. All members of a credit union organization have equal voting rights regardless of how much they have in their savings and decide on the policies.
Bank account holders have no right whatsoever of controlling the activity and decisions made by the executive. Banks use a board of directors to decide on various policies on behalf of the account holders and stockholders. For eligibility when opening an account, banks ask for an identity to verify it before allowing an applicant to have an account.
If you are looking for a bank or credit union search in your area for the best options. For example, if you live in Omaha, you would search for an Omaha Federal Credit Union. Make sure to find a bank that meets your own banking needs.
Product and technology
Credit unions grant fewer products, including commercial lending, compared to banks such as business loans and credit cards. Furthermore, credit unions are smaller since most are regional, unlike banks that are expansive and serve a broader demographic with diverse financial needs. Therefore, banks have more investment products than credit unions and a higher financial capability to invest in technology than the latter.
Technology in the financial realm includes mobile banking or other online services where large banks have diverse, up-to-date applications that meet the market demand.
Interest rates and fees
If you are aiming to open a personal or business account that will assist you in getting a loan of any kind, it will help to counter-check the interest offers of a bank and a credit union. Typically, a credit union offers lower rates and better loan terms than banks since the latter desires to make profits. Likewise, credit unions offer higher interest rates for all savings packages compared to banks.
Conversely, banks charge higher fees compared to credit unions since the former is profit-oriented. Credit unions grant lower or no charges at all for servicing accounts or withdrawal charges. Additionally, credit unions do not have a minimum balance for checking accounts. Banks have various fees such as overdrafts, bounced checks, monthly service, and higher withdrawal services, especially for errors.
Insurance
The National Credit Union Administration and the Federal Deposit Insurance Corporation respectively ensure that credit unions and banks account for a minimum of $250000. The two insurance organizations will ensure that your savings are safely kept, no matter the financial institution you decide to open an account. If you might have other accounts with more than $250000, you can contact customer care of either financial institution to check for eligibility for additional insurance coverage.
Customer service
Credit unions have a better customer service offer than large banks since banks make rules on a national level to serve their stockholders and account holders. Furthermore, banks fail to address issues at a local level because the executive leadership makes all decisions, and account holders have little or no say on these resolutions. Credit unions aim at serving their members’ needs and have flexible customer service where the members whose voting rights are equal to handle these issues.
Credit unions are smaller than banks with local branches facilitating the creation of a strong relationship with the members. Also, these branches are under the leadership of managers at the local level enabling faster and smooth acquisition of loans for members with minimal red-tape as compared to big banks.
Although banks and credit unions are similar by how they serve the public, the two have significant differences in terms of financial services they offer, among other components. These two financial institutions differ in terms of convenience, ease of access, product offers, rates, fees, and customer service. Therefore, in choosing a monetary organization, you should consider what you desire from an institution before deciding which account will best your needs.