In Focus – SCCCU Blog

Everyone needs a safe place to put their money. Maybe you’ve never had an account at a credit union or bank before, or perhaps you've recently moved, started a new job, or just want to find a financial institution that actually cares about you and your money. Which should you choose - a credit union or a bank?

The good news is that you’ve already made the most important decision — to open an account in the first place. Being “unbanked” means not having a secure account to save and store your money. And that comes with serious risks, such as having your money stolen or destroyed, being forced to use expensive check cashing services, or carrying cash with you all the time — none of which are safe options. Even still, the Federal Deposit Insurance Corporation (FDIC) estimates that nearly 6 million Americans are unbanked. Getting a secure account is one of the most important steps to securing your financial future.

Here’s a rundown of everything you need to know when choosing between a credit union and a bank.

#1: Financial Security

Credit unions and banks in the United States are insured in different ways. Still, both provide a similar level of security to customers, explains Michael Murdoch, Director of Marketing and Branding at CU Collaborate, a credit union consultancy.

Credit unions are insured by the National Credit Union Administration (NCUA), which provides deposit insurance to credit union members of up to $250,000 per depositor, per account type. In other words, if you had a joint account with a spouse, you’d be insured for up to $500,000.) Meanwhile, bank deposits are insured by the Federal Deposit Insurance Corporation (FDIC) for the same amounts.

“So, if you have multiple accounts, each account is insured up to that $250,000 per depositor limit, and your money is safe up to those limits, whether you choose a bank or a credit union,” Murdoch says.

The bottom line is that banks and credit unions are created equal regarding insurance limits. Before you deposit money, triple-check that your credit union or bank is insured by the NCUA or the FDIC to ensure you’re covered.

#2: Differences with Eligibility

Some of us may remember when credit unions had strict membership requirements. For example, decades ago, membership in a credit union might be tied to your place of work or profession. In some cases, you could only join a credit union if you worked at a particular paper mill or were a teacher or firefighter, Murdoch shared. But it’s typically not that way anymore. Many credit unions in the country have applied for a charter to expand their memberships and, as a result, are now more open than they used to be. Murdoch further explained that many are now open to almost anyone in certain professions or who lives, works, studies, or worships in particular areas. The best way to find which credit union you’re eligible to join is to search the National Credit Union Administration (NCUA) database, which offers an interactive map to find a credit union closest to you.

“Credit unions welcome new members. They must have a large enough field of membership to grow and thrive. Typically, any consumer will likely be eligible to join,” says Carrie Hunt, Chief Advocacy Officer for America’s Credit Unions.

On the other hand, banks are open to anyone who meets their account opening requirements, including age, identification, credit history, and deposit amount.

The bottom line: Credit unions are initially formed by members who share some sort of common bond — but sometimes that bond is simply living in the same state. Banks are open to anyone who meets specific criteria for opening an account.

#3: Ownership and Governance Differences

You may have heard that credit unions are not-for-profit. This means that, unlike a bank, credit unions are not looking to profit from you. Instead, their members own and operate credit unions, so they’re often called “member cooperatives.” Credit union members have voting rights and a say in the institution's governance. On the other hand, banks are typically owned by shareholders or investors, so their corporate decisions are made to maximize profits for stakeholders.

“Credit unions are run by a board, that is, mostly, volunteers. Because of that structure, credit unions focus on serving their membership and ensuring those individuals are financially sound. Credit unions have a vested interest in ensuring their members succeed,” Hunt explains.

Meanwhile, at a bank, customers do not have a say in how things are run, Murdoch says.

The bottom line: While banks are owned by shareholders with a goal to maximize shareholder profit, credit unions are member-owned cooperatives, and profits get reinvested into members (often in the form of lower interest rates on loans and higher ones on savings) and the local community.

#4: Fees and Rates

Credit unions often have lower fees and better interest rates on loans, savings accounts, and credit cards than banks. This is because of their not-for-profit status — because credit unions are not looking to profit off their members, they typically return a portion of their earnings to members through lower fees, higher interest rates on deposits, or better loan terms.

“Credit unions are designed to serve their members rather than maximize profits,” Murdoch says. “So any profits get returned to members in terms of lower rates [on loans and higher rates on savings], which is really appealing to consumers looking to save money.”

Meanwhile, banks may charge higher fees than credit unions for certain services, including overdraft fees, ATM usage, and account maintenance, among other things. Hunt says that interest rates on loans and savings accounts are often less competitive at banks than at credit unions.

The bottom line: Fees and interest rates are often better at credit unions than banks, but shopping around for the best deal when taking out a loan or opening a credit card is essential. Sometimes, banks offer preferential rates for products they want to shine a light on. A few days of comparison shopping online will let you know exactly where to put your money.

Banks are great, but credit unions are more invested in YOU.

While financial consumers can usually get everything they need from a bank, credit unions have several advantages beyond lower fees and competitive interest rates. Credit unions are known for their personalized service and focus on improving their communities and helping to develop local businesses.