Banks and Credit Unions

Before we dive into this one, let’s get something clear. Banks (nor credit unions) are the enemy. Yes, banks make lots of money and people get very rich working for or on behalf of them. Your loyal scribe knows some bankers, and they’re loaded. Anytime you’re handling people’s money, investing for them, etc., the profits to you will be sizeable.

But your loyal scribe also worked tangentially in the banking sector, microfinance to be exact. Microfinance is the lending of money to people who wouldn’t normally have access to a formal bank or credit union due to their income, lack of collateral, etc. Microfinance started small, entities discovered people without collateral would indeed pay the loans back, and the industry took off.

Fast forward to the present – more people are “banked” now in the world than ever before. Granted, microfinance is not a remedy to cure poverty, but people have lower-interest loans, and that’s a good thing. Ok, now that we’ve got that behind us and can agree banks and credit unions are useful, let’ discuss the differences between the two.

First is ownership – banks are owned by investors (few or tons) and are fully, for-profit institutions. Credit unions on the other hand are non-profit organizations and as such owned by members of the credit union. They do not need to make a profit, rather their goals are to keep fees low, set interest rates on savings as high as humanly possible, and interest rates on loans as low as possible.

Second is membership. With a bank, any human being can open an account. However, at a credit union only their customer base can do so. By customer base we mean a narrowly defined group of folks (schools, places of worship, geographic area, etc.). At a national level, credit unions need to get creative with this variable but the key to remember is – a defined group, per the definitions of the credit union board of directors.  

Third are fees. Credit unions overall tend to have lower fees and more competitive interest rates on loans and savings accounts. Banks however will typically have better technology (especially as it relates to mobile apps and online technology) and more products. Banks will also be able to leverage more ATMs and branches across the nation while credit unions cannot compete at this level. On the customer service side, this is a toss-up. If the bank is large and national, a local credit union might beat it out in terms of customer service. However, many banks these days have placed a premium on customer service and as such are gaining ground.

On the product offering side banks are the clear winners here. They have more resources and leverage to create and market innovative and creative product offerings. Credit unions are understandably smaller and cannot compete in this regard. Lastly is what is known as “safekeeping.” Accounts in both credit unions and banks are insured up to $250,000. The Federal Deposit Insurance Corporation as well as the National Credit Union Administration regulate this.

All in all, there are some major differences but that does not mean you can’t split your money into both. The differences are indeed varied, but each one has natural advantages. Choices in life are great.