How is a Credit Union Different than a Bank?

If you’re looking for a financial institution to help manage your money, you may be wondering what the differences are between a credit union and a bank. While both types of institutions offer similar services, there are several key differences between the two.

You are not sure how a credit union is different than a bank. Banks are for-profit businesses that make money by charging fees and interest. Credit unions are non-profit organizations that exist to serve their members, not make money.

A credit union is like a bank, but better! Credit unions don’t charge fees or interest, they exist solely to serve the needs of their community.

In this article, we’ll explore these differences to help you decide which type of institution is right for you.

What is a Credit Union?

A credit union is a not-for-profit financial cooperative that is owned and operated by its members. Members pool their money together to create a financial institution that offers a variety of financial services, including savings accounts, checking accounts, loans, and credit cards.

Because credit unions are not-for-profit, they are able to offer lower fees and interest rates than traditional banks.

What is a Bank?

A bank is a for-profit financial institution that is owned by shareholders. Banks offer a variety of financial services, including savings accounts, checking accounts, loans, and credit cards. Because banks are for-profit, they aim to make a profit for their shareholders, which can sometimes result in higher fees and interest rates for customers.

1. Ownership and Governance

One of the most significant differences between credit unions and banks is their ownership and governance structure. As we mentioned earlier, credit unions are owned and operated by their members, while banks are owned by shareholders.

This means that credit unions are democratically controlled by their members, who elect a board of directors to oversee the credit union’s operations. In contrast, banks are controlled by a board of directors who are elected by the shareholders.

2. Membership Requirements

Another difference between credit unions and banks is their membership requirements. In order to become a member of an Empower Federal Credit Union, you must meet certain eligibility requirements, such as living, working, or attending school in a certain area or belonging to a particular group. Banks, on the other hand, typically have no membership requirements, and anyone can open an account with a bank.

3. Products and Services

Both credit unions and banks offer a variety of financial products and services, such as savings accounts, checking accounts, loans, and credit cards. However, there are some differences in the types of products and services offered by each institution.

Credit unions typically offer lower interest rates and fees on loans and credit cards than banks. They also often offer higher interest rates on savings accounts and may offer specialized services, such as financial counseling or education.

On the other hand, banks often offer a wider variety of financial products and services, such as investment accounts and insurance products. They may also have more extensive online banking and mobile app capabilities.

4. Fees and Interest Rates

As we mentioned earlier, credit unions are not-for-profit institutions, which means they are able to offer lower fees and interest rates than banks. This is because credit unions are owned by their members, and any profits made by the credit union are returned to the members in the form of lower fees and interest rates.

Banks, on the other hand, are for-profit institutions, which means they aim to make a profit for their shareholders. This can result in higher fees and interest rates for customers.

5. Customer Service

Another difference between credit unions and banks is their customer service. Credit unions are often praised for their personalized and friendly customer service. Because credit unions are owned by their members, they are able to provide a more personalized experience for their customers. Banks, on the other hand, may have more extensive customer service hours and online support options.

Which is Right for You?

Deciding between a credit union and a bank ultimately depends on your personal preferences and financial goals. If you’re looking for lower fees and interest rates, a credit union may be the right choice for you. If you’re looking for a wider variety of financial products and services or more extensive online banking capabilities, a bank may be a better fit.

It’s also important to consider the membership requirements and eligibility criteria when choosing between a credit union and a bank.

If you value personalized customer service and want to be part of a financial cooperative that is owned and controlled by its members, a credit union may be the right choice for you. Credit unions often offer lower fees and interest rates, higher savings account interest rates, and specialized services, such as financial counseling or education.

If you’re looking for a wide range of financial products and services, such as investment accounts or insurance products, and want access to extensive online banking and mobile app capabilities, a bank may be a better fit. Banks may also offer more extensive customer service hours and online support options.

It’s also important to consider the membership requirements and eligibility criteria when choosing between a credit union and a bank. Credit unions typically have membership requirements, such as living, working, or attending school in a certain area or belonging to a particular group. Banks, on the other hand, generally have no membership requirements and anyone can open an account with a bank.

Final Words

In summary, credit unions and banks have several key differences in their ownership and governance structure, membership requirements, products and services, fees and interest rates, and customer service. Choosing between a credit union and a bank ultimately depends on your personal preferences and financial goals. By understanding the differences between the two institutions, you can make an informed decision and choose the one that best meets your needs.