The numbers of options for consumers seeking financial services and advice has grown significantly in recent years. With things popping up like robo-advisors, crowdfunding, and online-only banks how does one choose where to use and put their money?
However with all these new services, one of the most misunderstood features of any of these institutions is the difference between credit unions and banks.
While it may seem that banks and credit unions really offer similar products and services, often times the distinguishing factor is on the delivery.
Below you will find a quick comparison as to how these institutions compare across a few criteria you may find important.
The Biggest Difference: Where do the profits go?
As you can see from above, both institutions provide similar services to consumers. However, one distinguishing factor from them both are that credit unions are non-profits while banks are for-profit organizations.
This single difference is what will be the foundation for the other categories below. When a company exists primarily to generate profit, its core business strategy is focused on maximizing profit for return to its owners; aka stockholders.
A credit union however, exists to serve a community of people who can often be based geographically, through employers or membership. These institutions serve that community by providing services to its members on the most favorable terms that they can afford to offer.
Instead of offering large dividends to a small group of owners, as banks do. Credit unions offer smaller dividends, reduced loan rates, and fees but to a larger group of members (where CU members are both customers and owners).
I personally have chosen to go with credit unions as my preferred route. I have gone this way for a few reasons.
1. Better interest rates: I currently bank with two credit unions, the first being BECU. They are known as one of the biggest CU’s in Washington State. They offer great rates and outstanding customer service. My other choice is SMCU. They both offer great rates and I choose to bank with multiple because I can get more interest if I diversify my accounts between the two. Between these banks combined, I get 4% on the first $500 on my checking and savings at BECU and 6% on the first $500 of my checkings at SMCU. Not bad compared to the .001% interest you will find at most banks.
2.Fee free accounts: Often times, many banks will charge you monthly fees unless you meet their minimum account requirements, spending habits or have direct deposit into those accounts. According to Bankrate’s 2016 credit union checking survey, 76% of credit unions offer fee-free accounts. In some cases where there may be fees, they are frequently lower than at banks.
3.Community enrichment: At a credit union, whenever members join and participate they are essentially buying shares of a company. Rather than they themselves just being a customer, they are members of a local cooperative. This is possibly why the customer service is often far superior than at banks. It isn’t a relationship between the business and a customer but between partners with a shared interest.
What will you choose
Now that you know the major differences between the two you are now set to look for your best option.
When looking be sure to keep these things in mind:
Find your contenders: You may already have some places in mind but you should always compare side to side the benefits you will be getting
Identify what you want: What matters most in the institution you use? Great technology? Rates? Customer service? Make sure to make a list so you know what you are looking for.
Narrow your list: Which places meet your top criteria. Among these, do some perform better than others? Are there any negative aspects that could change your mind about what matters to you?
Good Luck, Newbies
Who do you currently bank with and why did you go with them?