Although credit unions and banks are similar in that they provide many of the same services, it's a good idea to have a grasp on the differences between the two. Knowing how each of these entities operates will help you make a more informed decision about which financial institution you'd prefer to use.
Credit unions are owned by the customers, usually referred to as "members." When you have an account at a credit union, you're considered to be an owner and receive the privilege to vote on issues regarding the credit union. Banks, on the other hand, are owned by for-profit corporations and have governing boards that vote to make business decisions for the profit of the corporation.
If you bank at a credit union, this is good news. When your credit union experiences a profit, it will be split among its members, so you'll get a piece of that profit. A bank's profits go to its owners.
Overhead is lower at credit unions because any profits are always split with its members. Also, banks are required to pay federal and state taxes, since they are for-profit corporations.
Credit unions typically don't charge monthly fees on checking or savings accounts and charge low fees on loan applications. Banks, however, make a huge chunk of profit off their $5 to $10 per month checking account fees.
Credit unions tend to offer loans at lower interest rates than banks. Banks charge higher interest rates to increase profits for corporate owners. Also, as banks are required to pay both federal and state taxes since they are for profit, banks' overall fee structures tend to exceed those of credit unions.
Credit unions are regulated, governed, and insured by a different government body called the National Credit Union Administration, NCUA. Banks, on the other hand, are regulated, governed, and insured by the Federal Deposit Insurance Corporation, FDIC. Both regulatory bodies insure an individual's accounts at the corresponding institution up to $250,000.
Banks tend to focus their services on providing businessmen with accounts to run their businesses. Also, banks provide banking accounts and services for consumers as well. Many banks offer trust services, which means they take charge of estates after the estate owner's death and manage the estates for the deceased.
Credit unions, however, focus on their members as the main receivers of their services to whom they provide various checking, savings, and money market accounts as well as offer loan services.
Although you could find people to argue each side of this question, you'll often hear that people who bank at credit unions will "never go back" to a bank again. Credit union members tend to enjoy no monthly fees on any of their personal banking needs and receive personalized service.
Credit union employees are often trained to call their members by name and to treat everyone the same, regardless of the amount of money in their accounts.
Even so, banks also have loyal customers who would not consider switching to a credit union and appreciate the supportive business atmosphere that banks provide.
When you're trying to determine where to place your money and do your financial business, consider the institution's ownership, fees and charges, and what the institution does with profits. Once you weigh out all the above factors, you'll be better able to place your money into the best financial institution to help you meet your financial goals.
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