Choosing between a bank and a credit union is a common decision that stumps consumers who are looking for a new place to stash their money. By understanding the differences between banks and credit unions, and weighing other factors, you can make a better-informed choice.
Like banks, credit unions are financial institutions that offer a wide range of financial accounts and services, but credit unions operate under a different game plan.
Banks aim to generate profits and boost shareholder value for investors, while credit unions are not-for-profit. Banks have customers and credit unions have members, who have an ownership stake in their credit unions.
Any profit generated by a credit union is returned to its members in various ways such as lower fees, lower borrowing rates or higher deposits rates for savings accounts and certificates of deposit (CDs).
Additionally, becoming a customer of a bank and a member of a credit union can differ in terms of qualifications. A bank may reject an applicant does not live within proximity of a bank or carries a bad credit profile. Credit unions may be less stringent but they may require certain affiliation to become a member (e.g., an employee of a certain type of company or agency, a member of an association, former or active member of the military and etc.).
Similar to banks, deposits at credit unions are protected up to the certain amount. At a bank, deposits are insured up to $250,000 by the FDIC per customer per account ownership type (e.g., single, joint, business, trust and etc.). At a credit union, deposits are also insured up to $250,000 per account ownership type, but by the National Credit Union Administration.
Bank or credit union?
Picking between a bank or credit union will eventually come down to cost and quality of service. In addition to reviewing monthly fees for accounts, it is also important that you look at fee schedules to compare the costs of related transactions and services, such as overdraft, card replacement and ATM access fees. Again, because of the structure of credit unions, they tend to have lower costs.
Read: How to avoid common bank fees
Other than fees, you should also consider the number of locations of nearby branches and ATMs, hours for live customer service and online/mobile banking features. Banks tend to do better than credit unions on this front.
Ultimately, your personal preferences and financial habits will drive your decision in choosing between a bank versus a credit union. (It may be a good idea to try both to determine the right place for your money.)