Credit Union vs Bank: Here's Where to Save the Most Money on Fees and Interest
by John-Michael Haines
You work hard for your money, and you want to keep as much of it as possible. At least I do!
While many people stash their cash under the mattress, many of us are members of a large national bank that we trust to keep our money safe.
Bank of America. Wells Fargo. JP Morgan Chase. These major banking institutions might have the best name recognition, but that doesn't mean they're giving you the best deals on loans, checking, or savings accounts.
Credit Union vs Bank: What Are the Differences?
The top priority for large national banks, like any business, is to cut their expenses (sometimes by paying deposit holders less in interest) and boost their profit margins (sometimes by charging higher loan interest rates) to please shareholders.
Credit unions, on the other hand, aren't beholden to shareholders. Their loyalty is to their member owners -- the same people who have money deposited in the credit union.
And unlike banks and many other financial institutions, credit unions are "not for profit." They operate only to serve their members and use profits to cover expenses and make improvements. After that, excess earnings may be paid out to members via a dividend payment or they can be used to offer members more affordable loan rates, higher returns on savings and lower fees on products and services.
In fact, according to the Credit Union National Association, the average customer saves $74 per year by belonging to a credit union instead of a bank.
Banking at a credit union is almost identical to banking with a bank. Once you open an account and become a member, you can sign up for various services (checking, CDs, IRAs, loans and saving plans) and your deposits may be insured up to $250,000 -- just like at the bank.
What are Some Disadvantages of Credit Unions?
While the advantages for credit unions are aplenty, there are a few downsides to banking with a credit union. Unlike Bank of America, your local credit union may not have ATMs everywhere you go, and it's unlikely that you'll be able to find a branch far away from home. However, some larger credit unions belong to a nationwide system of 25,000 fee-free ATMs.
Another disadvantage of credit unions is that membership is not open to everyone. All of those low fees and incredible interest rates are only available to you if you meet the credit union's qualifications.
While many credit unions allow you to become a member simply by opening an account, others may need you to join through your workplace or another organization you belong to. Sometimes it can be as simple as living in the right county or city. Either way, your local credit union will be happy to help you determine whether or not you're eligible.
Credit unions have many benefits over traditional banks, so before you put your money into the large bank down the street, consider if a credit union could meet your needs just as well.