People often need clarification on banks and credit unions when considering opening a financial account. Both banks and credit unions offer outstanding services. However, credit unions are known for offering higher interest for savings accounts and lower interest rates on loans. They can also prove to be a better option for car loans and can provide a lower overall loan amount.
Using a credit union for a car loan could be advantageous, especially when you’re not purchasing an expensive car. There are many such differences which we’ve covered in this article to help you make the right choice.
| Banks | Credit Unions | |
|---|---|---|
| Company Type | Privately-owned Publicly traded | Nonprofit organizations Cooperative institution |
| Fee | Higher Fees Lower Interest Rates | Lower Fee Higher Interest Rates |
| Range | Offers many financial products (ATMs, online banking, technology, etc.) | Offer less range of financial products |
| Personal Service | Not providing customer-specific attention. | Personalized attention and customer satisfaction is the key. |
| Customers | Serves the public. | Serves members only. |
| Ownership | Owned by investors and shareholders. | Owned by its members. |
Ownership And Membership
Banks
Banks are generally privately owned or public ltd companies. They are run by the shareholders and investors with one primary goal- profit. Hence, their strategies are less customer-oriented and more inclined towards making profits.
Any person or company can open a bank account. However, unlike credit unions, customers have no voting rights and do not have any role in the bank’s operation strategies.
Credit Unions
According to the Credit Union National Association, 130 million Americans are members of credit unions, which are not-for-profit organizations that are owned by their members.
Credit Unions are not under pressure to make any profits for their members. All they need to do for their members is to help them get the loan at the lowest possible rate.
Financial Products
Banks
Both banks and credit unions offer many similar services, such as the following.
- Direct Deposits
- Savings Accounts
- Checking Accounts
- Mortgage and Home Loans
- Business accounts
- Construction Loans
- Certificates of deposit (CDs)
However, if consumers want access to a wide range of specialized services such as education loans, business credit cards, individual retirement accounts, digital technology, or money market accounts, banks offer more cutting-edge features. That is because banks have a more comprehensive range of networks.
Credit Unions
Credit Unions often offer fewer products than banks, especially in providing banking services for businesses. It is because these unions are usually much smaller in the network than banks and operate in their local areas. They do offer basic services such as checking and savings accounts and credit cards. However, the investment options are fewer than banks.
Interest Rates
This is where credit unions entirely beat banking institutions. Banks and credit unions have considerable differences in the offered interest rates. Credit unions frequently provide loans with the lowest interest rates, including mortgages and auto loans. Moreover, these unions offer attractive rates and greater interest rates on savings items and CDs than banks. Banks, on the other hand, have a higher tax burden pressure which compels them to keep their loan rates higher.
Fees
Banks have many expenses and are under constant pressure to generate profits for their stockholders. That’s why they often charge more and are infamous for charging higher fees than credit unions. For example, bank account holders with free checking accounts usually have restrictions on minimum balances and are charged higher fees for failed checks. However, no such restrictions are placed by credit unions. Plus, the costs charged for any banking mistakes are much lower.
Make The Right Choice
There is no right or wrong when it comes to credit unions vs. banks. What matters is understanding your financial requirements and considering other elements to choose the right lender. For example, a bank is suitable if you prefer the convenience and easy access to several financial products (ATMs, online banking, etc.). However, for consumers who want to get more affordable services, get higher interest rates on savings, and lower fees, credit unions can be the right choice.
