Most people default to a bank when they want to open an account to manage their money. However, credit unions are becoming much more popular as an alternative. In fact, in some locations, these organizations offer more benefits and increased convenience over even the biggest names in banking. Understand the differences between banks and credit unions so that you can make a wise decision about where to put your money.
For-Profit vs. Non-Profit
The most important difference between these two types of financial institutions is that banks operate for profit. They offer products like accounts, lines of credit, mortgages, and other financial services with the intention of making money from you.
Credit unions are nonprofit organizations owned not by huge corporations but by the members themselves. With that in mind, you have to actually become a subscribed member in order to use their services. That is different from being a client at a bank.
Differences in Fees and Interest Rates
Because banks are for profit, they frequently charge higher fees and pay lower interest rates than credit unions do overall. It makes logical sense that a business owned by a large corporation wants to make more money from the people who use its products and services. The member-owned credit unions focus on greater benefit to the owners.
Availability of Financial Products and Services
Since banks have more money in general, they usually offer a wider variety of account types, loan options, and other financial services than credit unions do. While both will probably offer checking and savings accounts with options like direct deposit, debit cards, and overdraft protection, mortgages and home loans, auto loans, and small business loans, they may not be equally balanced between the different types of organizations.
Different Requirements for Accounts and Loans
It all comes back to a bank's desire for profit. They want less risk and higher returns, and they usually have more stringent requirements for loans and lines of credit. On the other hand, credit unions prefer extending lower interest rates to their members because the members own and control these factors. They may also extend more options to people with no or lower credit scores.
Finally, banks are simply more popular than credit unions in most locations. Many have massive national or even international corporations backing them. This means you should be able to find a branch of your bank in most cities and towns. Credit unions tend to focus on much smaller geographical locations, so it may be difficult to find one that suits your needs nearby. If you do, however, you can reap the benefits of member-owned, non-profit accounts and other services to help you manage your personal finances easily.