What's the difference between a credit union and a bank?
If you are looking for a good place to open a savings or checking account, you may wonder: what is the difference between a credit union and bank?
Both are financial institutions, and both allow you to open an account and save money. However, they are not the same, and one may suit your financial needs better than the other.
Here's a quick guide on what a bank vs credit union is and how to choose the right one for you.
Difference Between a Credit Union and Bank
Both seem similar in many ways, which may make you wonder how much difference there is between a credit union and a bank. Credit unions and banks both offer many similar products and services to help you manage money, including:
- Checking and savings accounts
- Money market accounts
- Credit cards
- Home and auto loans
- Small-business loans
The main difference between a credit union and bank is the different business models they use.
Banks are for-profit institutions. Because of this, they have to pay taxes and will generally offer lower savings rates with higher fees. However, they typically will have a wider variety of financial products.
Banks will do business with anyone. The only exception to this is if a person has a history of banking problems.
Credit unions are nonprofits, so they do not have to pay taxes. This allows them to offer higher savings, require lower fees, charge less interest on loans, and sometimes even give members dividends. The products they offer may be less varied than what you could get at a bank but are often more personalized.
Credit unions only offer products and services to their members, who own the institution. The eligibility of membership varies from credit union to credit union, and can range anywhere from highly restrictive to just needing to pay a membership fee.
As credit unions are member-owned, they are usually managed by a member-voted volunteer board. This volunteer board often consists of members who use the credit union for their banking needs. Because of this, the volunteer board is often more focused on serving the member community's needs than on generating profits for shareholders.
Is a Credit Union Better Than a Bank?
Credit unions typically offer better financial benefits than banks, making them especially ideal for college students. However, there can be exceptions to this, so it is necessary to compare individual banks and credit unions to find the one that meets your financial needs best.
Some of the larger credit unions that function on a national scale may not provide more personalized service when compared to a small, community bank. On the other end, very small credit unions may not even offer certain basic, modern services, including mobile banking.
To decide between a credit union and a bank, you must carefully compare the services and benefits each one offers to be sure you are choosing one that will suit your needs.
How to Choose a Credit Union
Now that you know the difference between a credit union and bank, you can get started choosing which one is right for you.
The first step you need to take before choosing a credit union is to be sure you are eligible for membership. After that, you will want to check which credit unions will best suit your financial needs.
If you are interested in finding a credit union in Southeastern Michigan, contact us today to learn more about how our personalized service can benefit you.