Which Should You Choose Bank or Credit Union

Which should you choose bank or credit union? Many people today are choosing to change their preferred financial institution. This change is driven by a number of factors but clarity on which is best for you may not be so clear.  Should you go with a bank or a credit union? Many years ago, the two were as different as night and day. Today there are fewer differences, particularly in terms of convenience, especially if the credit union you’re considering has good online services and is a member of a co-op that provides access to branches and ATMs nationwide.  And safety is no longer a concern from one to another since both use federal government insurance with limits of $250,000 per customer, per institution.

The FDIC insures deposits that a person holds in one insured bank separately from any deposits that the person owns in another separately chartered insured bank. For example, if a person has a certificate of deposit at Bank A and has a certificate of deposit at Bank B, the amounts would each be insured separately up to $250,000. Funds deposited in separate branches of the same insured bank are not separately insured. Additionally, the FDIC provides separate insurance coverage for funds depositors may have in different categories of legal ownership.

Banks are owned by investors, whether privately held or publicly traded, and operate as for-profit institutions. They are predisposed to make a profit for their investors. Anyone can open an account with a bank including individuals, companies, trusts, estates, non-profits, etc.  Banks offer personal and commercial services including credit cards and loans. Many banks take it step further and offer investment and saving vehicles as well as insurances. Banks that offer everything on the financial spectrum are known as “money centers”. They have many sources from which income is derived, leading to what some consider transaction, as opposed to relational. For example: one notorious case: In 2018, Wells Fargo was fined $575 million for opening unauthorized accounts and charging consumers for unnecessary auto insurance and mortgage fees.

Credit unions, on the other hand, are not-for-profit and are owned by their members. In fact, the Credit Union National Association, says 120 million Americans belong to a credit union. Contrasting with banks who must make a profit for their investors, credit unions have no need to make a profit for their members. Credit Unions have a goal that is completely counter to a bank. They are focused on keeping their fees low, to set their interest rates on savings as high as possible, and to set their interest rates on loans as low as possible. Unlike a bank, however, credit unions must limit their customer base to what’s called a “field of membership.”

Of course everyone wants the “best rate” when it comes to borrowing so let’s talk about how the two are different.  Banks and credit unions have stark contrast in this arena. Now, in all fairness, online banks tend to be more competitive as compared to their brick-and-mortar counterparts. Nevertheless, banks usually fall short when competing with credit unions. Why? Remember, banks have a dual mandate; make money for their investors and keep customers happy.  This challenge results in higher fees, and more of them.  For example, can you remember when banks advertised “free checking”?  Today you would be hard pressed to find accounts that are actually free.  “Free” is rarely free. Instead, this is often code for minimum account balances or requirements for additional account types, including business, mortgages, credit cards, home equity lines of credit, and the list goes on.

If you are still wondering which should you choose, bank or credit union, keep reading. Let’s round out the conversation with a look at technology.  After all, we live in the technology age and it is very important to most people. This is where large banks gain the advantage. You likely know the term, size matters. Well, large banks have more money to spend on technology, thus making them superior to most credit unions.  Today, mobile banking services are likely to be far more advanced at banks, another result of deeper budgets for technology.  So, if you have a penchant for technology and plan to do most of your banking online, ask for a demonstration before taking it for granted that technology is equal. Create a comparison of offerings from the institutions you are considering, confirm they exist, and let that serve as a guide for making your decision.

Key Differences

Credit unions look to serve their membership and tend to be more flexible when it comes to customer needs. Votes regarding customer service issues are influenced by the account owners—the members of the credit union—who have equal voting rights. Also, credit union membership is smaller and better known to local branches, which helps facilitate establishing relationships with branch managers and loan decision-makers. That can make it easier to get the loan you need. Of course, some banks make consumer outreach a goal so you may also find good personal service at a local bank branch.

Major banks typically have more locations to provide direct service to customers. Credit unions tend to be in much smaller towns and cities, with fewer branches. To offset this disadvantage, credit unions have formed a CO-OP Shared Branch network with more than 5,600 shared branches nationwide. Connexus, for example, allows you to search for branches online. In addition, it offers more than 54,000 surcharge-free ATMs through the CO-OP or MoneyPass in order to provide more competitive customer service nationwide.

The Bottom Line

Credit unions will likely offer you lower-cost services and better interest rate options for both loans and deposits. Banks will likely provide more services and products, as well as more advanced technologies. You’ll need to take factors like these into consideration in deciding which type of institution will best serve your needs. If relationship is important, don’t think you need to eliminate banks as a possibility.  But, keep in mind that larger institutions tend to be more transactional and less focused on building relationships with its customers.

If you are still wondering which should you choose, bank or credit unions, or any other element of wealth management, visit us at omnistarfinancial.com