It's tough to know where to deposit your hard-earned cash, these days. Economic uncertainties abound, and the recent bank failures have made a lot of people wary about where their money is kept.
Banks and credit unions are both financial institutions, but they have some important differences. Knowing more about how they operate can help you decide where you want to do your banking.
5 Key Differences Between Banks and Credit Unions
Both banks and credit unions handle deposits, offer loans, and do all of the basics that you might expect from your financial institution, but they have some fundamental differences in terms of their ownership, structure, and purpose. Here are the key distinctions:
-
Ownership: In a credit union, account holders are considered "members" and each member is considered equal, regardless of the amount of money they have deposited. In contrast, banks are owned by shareholders who expect to earn profits from their investments.
-
Membership: Banks are open to the general public and anyone can become a customer by opening an account. Credit unions have membership restrictions based on a common bond, such as working for a particular employer, belonging to a certain organization, or living in a specific community.
-
Profit and Fees: Banks aim to generate profits for their shareholders and that's often their primary focus. They may charge higher fees for various services and may offer lower interest rates on deposits or higher interest rates on loans. Credit unions are not-for-profit entities, and prioritize serving their members' best interests. They often offer lower fees and more competitive interest rates, and can be easier to work with on loans.
-
Community Focus: Credit unions often have a strong community focus, as they are formed to serve specific groups of people, and aim to provide affordable financial services for their members. Banks, while they may engage in community initiatives, have a broader customer base and are generally not as closely tied to specific communities.
-
Safety: Both kinds of banking services will keep your money safe — up to $250,000 per customer — in the event of some kind of theft or failure. Deposits in regular banks are covered by the FDIC (Federal Deposit Insurance Corporation), while credit unions are covered by NCUA (National Credit Union Administration).
It's important to note that both banks and credit unions are regulated financial institutions and must adhere to applicable banking regulations and consumer protection laws. The specific services and products offered can vary between institutions, so don't be afraid to ask questions before you decide where to open an account.
Share
