Individuals and businesses have decisions to make when managing money. High on the list is where to deposit or invest their money. Although banks and credit unions both accept deposits and offer investment services, they are different in many ways. For example, banks may offer more products and greater geographical convenience, while credit unions may offer services at a lower cost.
Purpose of Credit Unions
A credit union is a non-profit financial institution owned by members with something in common, such as the same employer. You can get a checking and savings account at a credit union, as well as a certificate of deposit or money market account. You can also get a mortgage or home equity loan, car loan or personal loan. Unlike banks, credit union shares are insured by the National Credit Union Administration.
Purpose of Banks
Like credit unions, banks offer checking and savings accounts and financing options, including personal and small business loans. Banks also issue certificates of deposit and money market accounts. Unlike credit unions, banks are for-profit financial institutions that answer to their shareholders and are regulated by the Federal Deposit Insurance Corporation, which also ensures the banks' deposits.
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Often, a commercial bank has more automatic teller machines and branches than a credit union. However, credit unions can belong to shared networks that allow customers to get cash or make deposits at other facilities within the network without paying a fee.
Credit unions usually offer some services at a lower cost than commercial banks. For example, a credit union may offer checking accounts with free checks, no service charges and no minimum balances. In addition, credit unions often offer lower credit card fees than banks. Credit unions also might waive late fees on credit card payments or extend the grace period before charging a late fee on payments. Such benefits may not be offered at banks because they are for-profit institutions that are accountable to shareholders interested in profits and earnings. Consequently, banks often charge higher interest rates than that of credit unions and pay lower interest rates to make the bank more profitable.
Use of Earnings
Because credit unions are not-for-profit organizations, they return earnings to members through the payment of higher rates on savings deposits, lower rates on loans and lower service fees than banks offer. In contrast, banks are for-profit organizations whose earnings may be returned to shareholders in terms or dividends or an increase in share value.
Credit unions target a particular group, such as employees of a certain company, and service the group's particular needs. For example, a university credit union will serve the university students' needs. Consequently, a credit union serving a university might conduct a more lenient assessment of borrowers' loan applications than banks.
Large regional and national banks are often much bigger than credit unions. This means the banks can offer a greater variety of services to customers in terms of loan and account options, and the services might be offered in a timelier manner. For example, money transfers from one bank to another may be quicker than from a credit union to a bank. In addition, a bank's website may offer more online services.