Banks and credit unions offer similar financial services, but there are a few key differences between them. Let’s take a look at what sets these two types of institutions apart.
For-Profit vs. Not-For-Profit: Why It Matters
Banks are for-profit institutions, which means their goal is to generate income for their shareholders. Credit unions, on the other hand, are not-for-profits that work for the public good and use their profits to benefit their members.
Credit unions are owned by their members and focus on providing affordable banking services to their communities. While they tend to lack the financial leverage of banks, their not-for-profit status grants them tax exemptions and other benefits.
Since banks are for-profit institutions, they tend to charge higher fees and interest rates. But they also focus on retaining customers by offering convenient banking technology and a wide range of products.
Banks vs. Credit Unions: Pros and Cons
Credit Unions offer membership to specific communities, such as those sharing occupational, regional, or religious bonds. Since they are not-for-profit, they return their profits to members in the form of lower interest rates and fewer fees. They also offer financial education, often have a local focus, and often have local customer service.
Banks boast advanced banking technology, greater branch and ATM coverage, and a wider variety of financial products. Generally, most people can open a bank account by meeting basic qualifications such as presenting government-issued photo IDs and proof of address. However, banks can be more expensive for consumers, as they often charge higher interest rates and fees.
Which Is Right for You?
If you’re looking for a traditional banking experience with a wide range of products and services, then a bank is likely the best choice. However, if you’re interested in supporting a member-owned business or getting more personalized service, then a credit union may be a better option. Ultimately, the best way to decide between a credit union and a bank is to assess your personal needs and compare how several financial institutions will meet them.