Ben Todd | Jun 3, 2017 | 2
Credit Unions vs Banks: Which is Better for You?
According to the National Credit Union Administration, there are over 6000 credit unions in the USA. There are hundreds of banks with tens of thousands of branches across the USA. In this article, you are given a series of arguments for and against banks and credit unions. It is then up to you to pick which one you want to choose.
Credit Unions Find It Easier To Provide Better Customer Service
A credit union is owned by its members because it is a cooperative. Credit unions are supposed to provide affordable financial services to its members, and if it has no members, then it goes out of business.
A not-for-profit status helps to create a members-first mentality, which makes it easier for credit unions to provide a good service and especially good customer service.
The problem is that sometimes it works the other way. Without the motivation of profit, credit unions can go the other way and start becoming complacent about their service, their products, and their customer service.
It Is Easier To Become A Member Of A Bank
You are able to open an account with almost any bank that you choose. If you do not have a poor bank history or credit history, then many banks will welcome you with open arms. Credit unions do not work that way. Many of them have rules, with the most common one being geographic locations. Only people in a certain area may be allowed to join a certain credit union.
Some credit unions insist that only people in certain associations are allowed to join. Others demand fraternal affiliations or for you to be part of a religious group. There are credit unions that only allow certain employee groups to join.
There are a few hurdles to getting a bank account. A clean banking history helps, and permanent US citizen status helps too. Some banks are very exclusive, but most banks will allow anybody to join.
The most common eligibility criterion that stops people from joining banks is the amount required for an opening deposit and/or a good credit rating. However, these days, banks are happy for people to open basic accounts with a very small opening deposit, and still leave the door open for them to enroll for bigger and better accounts later on down the line.
Credit Unions Are More Likely To Give People with Banking Problems a New Account
If you’ve been banned from the banking system due to financial mistakes in the past (say you have a ChexSystems record) and can’t open a bank account with major banks, Credit Unions are more likely to give you a bank account than a bank (see our list of the best second chance accounts).
Credit Unions Cannot Invest As Much In Technology And Security
Banks always have the best security because they have far more to lose than credit unions, and they have the money to invest in security. Banks also have better technology for the same reason. Plus, banks have to compete with other banks if they want to remain profitable, so they have a bigger incentive to invest more in technology and security.
Credit Unions Can Often Offer Lower Interest Rates When Lending
Banks have to make a certain amount of profit, whereas a credit union simply needs to make enough money to keep going and keep growing. A credit union can offer lower interest rates with their credit cards and loans because they don’t have to add on that bit extra to make a good profit. A credit union can also take a bigger risk because a loss to a credit union means a minor setback, but a loss to a bank means they lose profits.
On a similar note, some credit unions are able to offer better interest rates on their savings accounts. That is not always the case because some banks have better access to more profitable endeavors, which means they can offer better savings rates. Nevertheless, because a credit union doesn’t have to make as much profit, they can give more back to their customers in the form of better interest rates with their savings accounts.
Banks Can Offer Better Rewards
Banking is a very competitive industry, so banks have partnered up with a variety of different businesses so that they may offer fantastic rewards that credit unions simply do not have the pulling power to offer. Things such as frequent flier miles, points with cash back, and free ATMs are just a few of the things that banks can easily offer, whereas credit unions struggle to compete in this area. Credit unions do not have the power and influence to be able to strike big deals with major companies.
Credit Unions May Impose Fewer Rules
Having fewer rules seems like a vague advantage for credit unions to have, but the way banks and credit unions work is a little different. Banks ask for things such as minimum balances, or direct deposits every month, maintenance fees and the use of BillPay. Credit unions may ask for similar things, but such rules are more common with banks.
Banks Have More Features And Account Perks
On the flip side of credit unions imposing fewer rules, a credit union’s accounts may have fewer perks and benefits. A bank may have its hefty set of rules, but they often come with a variety of accounts that have sexy perks and features. For example, you may have to maintain a balance of X amount to keep your savings account free with a bank, but the bank may also offer tiered rates that are linked to emerging technologies. Banks may offer investment opportunities that credit unions simply cannot. Even things such as mobile check cashing are more common with bank accounts than they are with credit union accounts.
Credit Unions May Be More Flexible Than Banks
There are some credit unions that are more flexible and will accept you as a member even if you have a bad credit rating, a poor credit history, or no credit history. Credit unions may also offer you access to most of their accounts and services if you have a poor credit rating. Banks are typically different. A bank is more likely to reject you if you have a bad credit rating, or they will only give you a very basic account until you have proved yourself to them.
Obviously, all of this is a generalization. There are banks that exist specifically to take on people who have a bad credit history and/or a very low FICO score. There are also credit unions that are so picky that they won’t take you as a member unless you have a family member who is already a member.
Conclusion – Banks Are The Winners In Most Cases
You are going to read a lot of articles that say credit unions are the best choice and the best option you have, and they are not wrong, but they are also not right. I approve of anybody who turns away from a bank that takes taxpayer money, or a bank that charges excessive fees, or a bank that sells financial products to people when they know those people cannot handle the debt. However, I cannot honestly say that credit unions are better.
Credit unions are certainly better than your bank if your bank is as immoral as the examples in the previous paragraph. Credit unions are also great because they take customers away from banks, so banks have to try a little harder if they want to stay in business. But, just because a high number of banks are irresponsible, immoral and suited-up thieves doesn’t mean that credit unions are automatically better.
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What it comes down to is which specific bank or credit union is right for you. We all have our own priorities. You may prefer a credit union because it plays a more conservative game or because it has healthier finances than your local bank. Alternatively, you may prefer a bank because it offers specialized financial products that are difficult to find elsewhere. Your choice should be based on your specific needs and what is available to you.