Recently, we posted a blog about spring cleaning your finances. So, how’s it going? Need a little more motivation? We thought you might!
We all know that clearing up the clutter in your personal – and financial life is important. BUT, it’s a lot less glamorous than watching your favorite musician in concert or taking that much awaited road trip with your friends. Until, all that clutter gets out of control…
We thought it might be helpful to break down some of the points we presented to you last week, particularly #8 – joining a credit union! It’s a question we get asked about quite a bit. What’s the big deal? Are banks and credit unions really that different?
The answer is yes. But, don’t take our word for it! Here’s what NerdWallet writer Devan Goldstein has to say about the difference.
Credit unions and banks offer many of the same services — checking accounts, savings accounts, personal loans and more. But they have their differences too: Credit unions are nonprofit, tend to have better rates and fees and can offer localized, personal customer service, while banks are for-profit and can offer more innovative products and up-to-date technology.
So where’s the best place to put your cash?
| Banks | Credit unions | |
|---|---|---|
| Structure | For-profit institutions | Not-for-profit institutions |
| Rates and fees | Tend to pay lower interest rates and have higher fees | Tend to pay higher interest rates and have lower fees |
| Insurance on your funds | Your funds in a bank will be insured by the FDIC up to $250,000 | Your funds in a credit union will be insured by the NCUA up to $250,000 |
| Customer service | Less emphasis on personal interactions | Emphasizes local and personal interactions |
| Physical locations | Large national banks will have many branches across the country. Smaller banks can cover smaller regions. | Credit unions will usually have fewer branches than banks, but some participate in a shared branching network that allows you to visit physical locations of a partner credit union. |
| Technology | Banks, particularly large ones, will usually be quicker in rolling out new technologies. | Although some credit unions are tech-savvy, sometimes credit unions can lag behind big banks in implementing new technology. |
What credit unions and banks offer
Money in banks is backed by the Federal Deposit Insurance Corp., and funds in credit unions are backed by the National Credit Union Administration, but the effect is the same: Deposits are insured up to $250,000 per person, per ownership category. And while broad ATM and branch networks are the norm for big banks, credit unions keep up with large, cooperative networks of ATMs and shared branches.
Credit unions generally provide better customer service than banks do. Credit unions also offer higher interest rates on deposits, lower rates on loans and lower fees.
Comparing any two institutions may, of course, reveal exceptions to these general patterns.
The biggest difference: What happens to profits
So what is a credit union, anyway? Although both kinds of financial institutions provide similar services to consumers, credit unions are nonprofits, while banks are for-profit organizations.
That single difference is the foundation for most of the others. When a company exists primarily to generate profit, its core operations are organized around maximizing that profit for return to its ownership.
A credit union, though, exists in principle to serve a community of people tied by a “bond of association,” which may be based on geographical region, employer, membership in another association, faith or other factors.
Credit unions serve that community by providing financial products to their members with the most favorable terms they can afford to offer. Instead of offering accounts to customers and large dividends to a small group of owners, as banks do, credit unions offer small dividends — and discounted loan rates, reduced fees and other benefits — to a large group of members. Credit union members are, in that sense, both customers and owners.
Making your choice
Now you know the difference! (Thanks, Devan.) So, what happens next? While we’d love for you to join us here at DuGood, we believe in serving others first before selling products.
Maybe you’d like to a little more research… now that you’re more credit union savvy. Our checking account page is a great place to start. There are some really helpful tables there, and you’ll be able to look at a side-by-side comparison of other financial institutions in Southeast Texas.
Here’s to an uncluttered life! May your spring cleaning be supremely successful!
Source: Credit Unions vs. Banks: The Difference and Why it Matters by Devan Goldstein on www.nerdwallet.com
