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Banks vs Credit Unions: Which Should You Use, and When?
Credit unions have gained a steady amount of popularity since the recession, when bank customers lost trust in their financial institutions.
In fact, according to the Credit Union National Association (CUNA) the number of credit union members jumped to an all-time high in 2017, reaching 110 million members nationwide—a 4.1% bump for the year.
But what are the differences between a bank and a credit union? And which service does it make the most sense for you to use?
We’re breaking down everything you need to know to make the right choice for your financial needs below.
4 Reasons to Join a Credit Union
Unlike banks, credit unions are membership-owned, not-for-profit financial institutions. Essentially, this means credit union members have a clear and transparent stake—and a say—in the union’s business dealings.
“Credit unions are cooperatives owned by their members,” Pat Keefe, spokesman for CUNA, explained to Bankrate.com. “Their mission is to provide their members with affordable financial services—not to gouge them as profit centers.”
The mission-driven mindset of credit unions tends to attract like-minded members who want to see local communities thrive—without worrying about the for-profit motives of national corporations.
Here are 4 additional benefits you’ll receive when you join a credit union:
1. No checking fees
According to a Bankrate survey, more than 84% of credit unions don’t charge a fee for checking accounts. That’s a big incentive for bank customers, who have to navigate everything from yearly operating fees to overdraft fees.
“The average cost of monthly maintenance fees, ATM and account use fees, and overdraft and non sufficient funds fees for a checking account is nearly $1,000 over a decade,” reports Spencer Tierney at NerdWallet. That’s a huge amount of cash you probably can’t afford to lose.
The financial blog also analyzed data provided by the Consumer Financial Protection Bureau to determine which banks charged customers an arm and a leg—and which banks offered relative freedom from fees.
No surprises here—NerdWallet listed several credit unions in their round-up of consumer-friendly checking accounts.
2. Higher interest rates for savings & deposits
Because credit unions are smaller businesses, they can afford to operate with fewer expenses and pass on savings to their members in the form of higher interest rates for savings and deposits.
But there are a few hoops to jump through to get these competitive rates, warns personal finance expert Rob Berger.
“To get the top rates at a credit union, you typically have to meet certain minimum requirements, such as using a debit card on a set number of transactions a month,” writes Berger at Forbes. “In addition, the top rates are typically limited to a relatively low balance.”
But with rates that can climb as high as 4%—compared to a measly national average of 0.08%—the hassle might be worth it.
3. Better customer service
While big banks have worked hard to improve their customer service since the Great Recession, credit unions generally have them beat here, too.
That’s because credit unions are small, with an intense focus on serving their membership and local communities, says finance reporter Tim Chen.
“Some work to promote economic and social justice by reaching out to low-income, rural and at-risk populations,” Chen writes at U.S. News & World Report. “Others provide free financial education services to adults and children.”
You can count on getting the star treatment every time you go into you local branch, too.
4. A supportive community
Credit unions have a membership process, and usually require an affiliation. For example, there are credit unions for employees of specific institutions, residents of local communities, faith groups, and labor unions.
But not all credit unions limit their membership to affiliate groups, and if you’re selected as a member, you’ll join a supportive community of like-minded folks.
For example, Jake Brown, a Montpelier, Vermont native, joined his local credit union in order to take advantage of their free financial courses, like retirement planning.
“A bank may have these services, but I don’t get the sense that they’re marketing it in the same way,” Brown told Barron’s. “It feels like the people who run the credit union are looking out for you.”
4 Reasons to Stay with Your Bank
Whether you bank with a small regional institution, or a national giant like Bank of America or Chase, big banks offer plenty of benefits for busy customers.
Here are the top reasons to stay with your bank:
1. National and regional access
One of the major benefits of banking with a big chain? You’ll have access to ATMs and branches all across the country.
Credit unions, on the other hand, often only have available ATMs at their local branch—which means you’re more likely to field an ATM fee when you travel (however, this is an issue credit unions have banded together to try and solve - and some will reimburse you for ATM fees).
But if you travel a lot, and find yourself using ATMs frequently, or needing branch services in other cities or states, a big bank might be the best bet for you.
2. Better technology
Love your banking app? Like being able to take a photo of a check with your phone to deposit the money directly into your account?
Then you may want to stick with your bank, which will generally roll out newer technology faster than a credit union.
Because developing new tech is expensive—and poses security risks—credit unions can be slow to adopt the latest bells and whistles.
3. Easier to open accounts
When you bank with a national corporation, they make it extremely easy to open an account. Unlike credit unions, you don’t have to have an affiliation in order to join.
Banks do tend to have a lot of fees associated with accounts, such as balance minimums or yearly fees. It is possible to get these fees waived sometimes, however.
It doesn’t hurt to remind them that you’re a longtime customer, says Stephen Novak, a senior vice president at Bryn Mawr Trust. "The greater your relationship with them, the more stuff you get [for] free," Novak told U.S. News & World Report. And that includes getting those pesky fees waived.
You may fare better in this area with smaller banks where you can forge more personal relationships with the bank’s employees.
4. FDIC-insured accounts
Knowing that your savings are insured by the Federal Deposit Insurance Corporation, or FDIC, can bring peace of mind.
FDIC-insured bank accounts are insured up to $250,000. That means if you ever experience fraud, or a bank tanks like it did during the Great Recession, your money can be recouped.
Accounts at credit unions are also insured—just usually not by the FDIC. Most credit unions receive their insurance through the National Credit Union Share Insurance Fund, or NCUSIF.
NCUSIF-insured accounts work quite similarly to FDIC-insured accounts, though the organization is administered by the National Credit Union Administration, the national governing body for credit unions. Learn more about how credit unions insure their members’ accounts here.
When it comes to saving up funds from your latest side hustle, you have plenty of options. Credit unions offer major benefits to their members, including lower checking fees and higher interest rates on deposits, while big banks are fast, easy to join, and convenient.
But you don’t have to pick and choose—you can always open accounts at multiple institutions to diversify your finances. Get the best of both worlds!
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