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Credit Union vs. Banks: What are the differences and similarities?

‍When it comes to choosing a financial institution to work with, there are several things you need to keep in mind. Are you more interested in being a member of a cooperative? Do you have any specific apprehensions about banks and traditional financial institutions? Do you need any special services that only credit unions or banks can provide?

Whatever the case may be, it’s important to do your research before making any final decisions. There are many differences between credit unions and banks. These differences extend from the way they operate their business to the products they offer. Even so, there are some similarities between both institutions. Let’s take a closer look at the pros and cons of credit unions vs. banks.

Credit Union vs. Banks: What are the differences and similarities?

What is a Bank?

A bank is a financial institution that provides financial services to its customers. These services include accepting deposits, issuing loans, facilitating currency exchange, providing debit and credit cards for current and savings accounts, providing business banking services, offering loans and mortgages, and providing financial advice.

Banks are primarily interested in profit-maximisation, which is why the majority of them charge their customers fees for their services, such as monthly fees, annual membership fees, or interest rates on loans and overdraft services. The main source of income for banks is charging interest on the loans they give to homeowners, small businesses, and individuals. Some banks, often those in the US may also charge fees for certain services, such as ATM withdrawals and overdrafts.

Banks get their money by accepting deposits from customers. These deposits are covered by insurance, which means they are guaranteed to be paid back, even if the bank fails. Banks in the UK are regulated by the Financial Conduct Authority, which operates independently from the government, and ensures that ethical banking practices are followed. Banks in the US are regulated by the Federal Reserve, an independent agency that ensures that banks are following ethical banking practices.

What is a Credit Union?

A credit union is a financial institution that serves the needs of its members. Credit unions are non-profit organisations that are owned and operated by their members. The goal of these organisations is to provide low-cost financial services to their members. Unlike banks, credit unions do not have shareholders to be concerned about, which means they can offer lower interest rates on loans and higher interest rates on savings. Credit unions have a reputation for being more personable than other banks. They also have a reputation for being more difficult to join, as you must be a member of the organisation to become a member of the credit union.

This means they can provide lower interest rates and fewer fees than banks, making them a more exclusive and much more affordable option. Credit unions are often formed to serve a specific group of people, such as employees of a certain company, members of a certain profession, or students at a certain school. Depending on the credit union, members may need to be approved for membership or may be able to join automatically.

You can find credit unions all over the UK and the US, and you’re sure to find plenty in your area with a quick online search. In the UK, credit unions are dual-regulated by both the FCA (Financial Conduct Authority) and the PRA (Prudential Regulation Authority) to ensure that they have sufficient capital and are run in a safe and sound manner. In the US, credit unions are regulated by the National Credit Union Administration (NCUA), which is an independent federal agency that regulates all federally-chartered credit unions.

What are the factors to consider in choosing between Banks and Credit Unions?

The key factors to consider in choosing between banks and credit unions are:

Fees and Costs – The first thing to keep in mind is that banks typically charge higher fees than credit unions. Credit unions usually have lower fees because they do not have shareholders who expect high profits. This means if you’re looking for a place to save money, credit unions are the way to go.

Interest Rates – Banks typically have higher interest rates than credit unions. This is because banks have shareholders to please, and they need to make a profit on the interest they make from their customers’ deposits. Credit unions do not have shareholders and therefore do not need to generate as much profit in order to be successful, which means they can offer lower interest rates on savings accounts and other deposit products like CDs (Certificates of Deposit).

Investment Opportunities – Banks typically have more investment options than credit unions. Credit unions are only required to offer a few investment options. Some of these include things like money market accounts and certificates of deposit. On the other hand, banks are allowed to offer a wider variety of investment options, including things like stocks and bonds.

Perks – Banks usually offer more perks than credit unions. This is because banks need to attract customers with special offers in order to compete with other banks for your business. Credit unions don’t have large profits that can be spent on marketing, so the perks offered by a credit union are typically limited compared to what you’d find at a bank.

Customer Service & Experience – When it comes down to it, service will be the deciding factor for most people when choosing between a bank or a credit union. Credit unions are known for providing excellent customer service because they’re not just operating for profit but instead by a team of people who simply want to offer like-minded people a better overall banking experience.

What are the Advantages of Using Bank and Credit Unions?

Comparing the two, let’s take a deep dive into the advantages of using the financial services of banks and credit unions.

Advantages of Using a BankAdvantages of Using a Credit Union
Banks are convenient. They are everywhere and easily accessible, offering all the types of bank accounts you could ever need, and Lower fees. By far the best advantage of using a credit union is the fact that credit unions will offer lower, more affordable fees on their financial services than banks.
Modern banks offer a comprehensive range of online banking and payment options.According to statistics, consumers who use credit unions save more through their accounts. A five-year average CD for a credit union is 0.76%, whereas it’s only 0.63% for banks.
Banks are safe. Money stored in a bank account is protected against theft and damage, and guaranteed by the government, even if the bank collapses.In line with lower fees, loan fees are much more affordable than they are at banks, making them great for consumers of all kinds.
You can easily save money with a bank account with easy account setup and easy transfers between your accounts.Credit unions are renowned for being active in local communities, whether that’s their physical location or among their consumers, therefore, being a part of a credit union is a great way to invest in these communities.
You can access credit easily through a bank, depending on the financial services they have to offer you.Credit unions are not for profit and are extremely customer-centric, providing an outstanding experience that puts you first.

What are the Disadvantages of Using Banks and Credit Unions?

While there are obvious advantages to both a bank and credit union, there are also disadvantages to both you’ll want to be aware of before making your decision as to which is best for you.

Disadvantages of Using a BankDisadvantages of Using a Credit Union
The main disadvantage of using a bank is the fact that banks are for designed for-profit and therefore charge high fees and interest rates.Limited accessibility. To use a credit union’s services, you need to be a member, and there may be requirements you need to meet in order to do this.
Banks are renowned for not being very customer-centric, meaning it can be challenging to get fulfilling support on your finances and accounts as and when you need it.

What are the Differences between Banks and Credit Unions?

The main difference between banks and credit unions is the fact that banks are run for profit, which means that they generate wealth for their shareholders at the expense of the customers. On the other hand, credit unions are owned by their members, who are its customers. 

This is why banks charge much higher fees than credit unions as they have to balance attracting customers against shareholders’ interests. A public limited company is legally obliged to act in the best interest of its shareholders at all times, whereas a credit union is focused on the best interests of its members.

The leads to the credit unions passing on the savings generated from not pricing in profit directly to their customers.

What are the Similarities between Banks and Credit Unions?

While there are some apparent differences between banks and credit unions, that’s not to say both respectable financial institutions aren’t similar in many ways. For clarity and to provide you with a clear image of how the two operate and what they can offer you, here are the similarities you need to think about.

Customer Service – While the quality of the customer experience can vary from place to place, both banks and credit unions provide similar customer service options. You can walk in to talk to a representative or call any of their offices with any issues, or you can call them over the phone, or even access your account online and speak to someone via a live chat service. In short, both institutions will be there when you need them.

Both are Regulated – Both banks and credit unions are regulated by government or independent regulators, meaning that you can be sure the financial services that are offered, the markets, and the fees, are organised in a way that is fair for customers.

Offer a Variety of Products – Both banks and credit unions offer a variety of products, from savings accounts and CDs to mortgages and investment services. It doesn’t matter what stage of your life you’re in or what your monetary or financial goals are, both financial institutions will offer services that are suitable for you.

Online Banking – Banks and credit unions both offer online banking, which is convenient for most people. In more recent times, this has also come about in the form of mobile banking apps.ATM Access – Both banks and credit unions offer access to ATMs. Whether you’re at home, in your hometown, somewhere else in the country, or travelling internationally, both institutions will provide you with cards that allow you to withdraw money from your account using an ATM. However, depending on which credit union or bank you’re with, you may be charged various fees, so be aware of this before opening an account.