Ben Todd | Jun 2, 2017 | 0
Credit Unions VS Banks – Is One Better Than The Other?
Credit unions vs banks – Credit unions are cooperative financial institutions that allow people to pool their money to provide banking, credit and saving services to other members. They are non-profit entities, which causes confusion for some people (it is cleared up later), and even though the nature of their operation sounds like it is a great place for corruption and embezzlement, it is no worse than with banks.
A cooperative where people pool their money sounds like something that is easier to rip off than a bank. It sounds like a few elderly people managing the money of the other elderly people in the secure retirement village. You can almost imagine the cooperative accountant with a cig in his mouth and a pencil behind his ear.
Yet, if you were to enter a credit union’s head office, you would see the same thing you see in a bank’s head office. There is no doubt that there is corruption and embezzlement in credit unions, but no more than in banks. It happens around the world because there are always bad eggs in the bunch. You simply have to steer clear of the ones that attract bad eggs, such as how HSBC helped people dodge taxes and store money in secret, or the Rush credit union that mysteriously lost 15 cars that were supposed to be given away as prizes.
Side Note – Why Are There So Articles Many Promoting Credit Unions?
My job is to add my own and the eCheck employee’s knowledge and experience to each article. I am also tasked with testing, reviewing and conducting online research, and I found a great many articles that promoted credit unions. Banks and credit unions are more like Coke and Pepsi, not like Honda and Mercedes, so I am not sure why so many people are over promoting credit unions online. Is it just because people are pissed off with banks at the moment?
Banks Are Motivated By Profits
A bank has to turn a profit because it is a business. Not only that, their aim is to turn a profit. They are not working for free or to help grease the wheels of society. Them trying to turn a profit is not a bad thing, but it may explain why they create fees and charges for things they could give away for free. Things such as the PPI scandal and court cases over banks charging overdraft fees has led to some banks losing money, which in turn caused some to increase their fees and charges.
Banks may charge higher fees if they start making a loss
Credit Unions Are Motivated By Profits
A credit union is a non-profit enterprise, but some people think that means they are not motivated by profits. If they were not motivated by profits, then all credit unions would make a massive loss until they disappeared. The people who run credit unions are very motivated by profits, and people lose their jobs when money is lost. If a credit union is not making money, it will make cutbacks and choices that hurt (for want of a better word) people in the short term for a long-term benefit.
Credit Unions will make harsh choices when money is being lost
Banks Need To Be Market-Competitive
A bank is not a government service, which means it needs to pander to its customers and give them the best possible service in order to keep making money. Sadly, the US government has a habit of bailing out banks, which means they do not need to be as market-competitive as they should be. However, with credit unions, online wallets, online banks, and numerous High Street banks, a bank has to be competitive or it will lose its customers to other banks and services.
A bank has a deep need and requirement to please its customers
Credit Unions Have Less Incentive To Be Market-Competitive
A credit union doesn’t have to try as hard to please its customers because it doesn’t have do anything more than breakeven while matching inflation. The bar is set a lot lower for credit unions, which means they need only do a passable job in order to remain in business. They will lose customers if they give a bad service, but people do not expect the same benefits and service as they do with a bank. For example, if you hear that a Credit Union doesn’t have online services, you may be a little less miffed than if you heard a bank doesn’t have online services.
Credit Unions do not have to try so hard.
When One Drops The Ball, The Other Picks Up The Slack
Describing banks and credit unions as being like Coke and Pepsi is rather apt. When New Coke came out, people started moving towards Pepsi because Coke had dropped the ball. When banks drop the ball, people start moving towards credit unions.
In 2015, the record for most people joining a credit union was broken. People joined credit unions around the world in higher numbers than in any previous year. The biggest reason was because bank fees had risen across the board. Banks were suffering because of PPI scandals, overdrawing fee scandals, belated economic recovery, tax evasion problems, and the problems that US double-taxation schemes were causing. Bank’s bottom lines were suffering, so they put up their fees, so people started putting their money elsewhere into places such as credit unions.
When credit unions make it too difficult to get a loan, or when their interest rates fall, or when they fail to adopt new technology, people start going back to banks.
When one messes up, people leave them and go to the other
There Are Too Many Exceptions For Me To Generalize
I am a big fan of generalizing. The Internet is rife with a PC hatred of generalizing with PC thugs preferring we think of everybody as an individual snowflake.
They fail to realize that generalizing is both necessary and intelligent. To say, “It is cold here in winter” is generalizing because it usually is. Just because there are sometimes exceptions doesn’t make me wrong. Furthermore, my predictions based on my generalizations are just as valid, such as if I said, “It has been cold during the winter months for the 12 years I have lived here, so I say it will be cold next winter.” It is based on my generalization that it is cold in winter, and my prediction is valid and correct because of it.
Why The Rant About Generalizing?
It is because on the subject of credit unions vs banks, I am unable to generalize–and it is a little annoying. Some online articles say that credit unions give better customer service, but I have reviewed many banks in my time and found that many banks give a great customer service.
I agree that credit unions give better rates and fees than High Street banks (with branches in the US), but I also know that online-only banks give great fees and rates too.
Some people complain that credit unions do not have enough branch locations, but there are smaller banks that have the same problems. I can only say that bigger High Street banks have it over on credit unions because bigger banks have locations everywhere.
Credit unions and banks are even and equal in many ways
Banks And Credit Unions Have Deposit Insurance
If a bank goes under, your money is protected by the FDIC (Federal Deposit Insurance Corporation) for up to $250,000. If a credit union goes under, it is protected by the NCUA (National Credit Union Administration) for up to $250,000.
Banks and credit unions have the same level of deposit protection
Banks Make Your Money More Accessible
Most banks have online services, they have apps, they allow you to use any ATM (most without fees), and many High Street banks have locations around the country. Credit unions offer almost the same thing, just slightly less. There are fewer locations, fewer fee-free ATM uses and so forth.
Banks make your money slightly more accessible than credit unions
Credit Unions Have Smaller Fees And Charges
The bigger an enterprise is and the more accounts it has, then the more it has to charge in fees. Banks tend to be bigger than credit unions, so they have to charge slightly higher fees. Credit unions do not have to turn as much of a profit, which means they may keep fees and charges lower if they wish.
Smaller credit unions have smaller fees
Credit Unions Have Better Interest Rates
A credit union will typically have fewer overheads than a High Street bank, which means they are able to make a reasonable profit and pass a little more of it over to their customers in the form of slightly higher interest rates. There are some High Street banks that offer better interest deals than credit unions, but there are not many. Credit unions can beat High Street bank interest rates in most cases, but they are often the same as online banks and money companies. They beat the snot out of digital wallets, since few of them offer interest-producing savings accounts. However, there are few banks (offline or online) or credit unions that can beat the interest rates offered by peer-to-peer companies for their investors.
Credit unions cannot beat all their competitor’s interest rates
Credit Unions May Give You An Account if You Have ChexSystems Problems
One advantage that credit unions hold over big banks is that they may be more willing to overlook ChexSystems problems. Indeed, some credit unions may not even do a ChexSystems check. So if you can’t open a bank account with banks, try opening your new account with Credit Unions (you are more likely to succeed). Some banks, however, like BBVA, do may still give you a bank account even with ChexSystems problems — so it’s not cut or dry here (try applying for the BBVA Free Checking Account online, for example — they are known to give accounts despite ChexSystems issues)
Why Does It Have To Be Credit Unions vs Banks?
Actually, it isn’t… It is banks vs credit unions vs. peer-to-peer companies vs. online banks vs. digital wallets vs. finance/money companies. If you want to save, exchange, transfer, invest or get a line of credit, there are plenty of places you can go.
For example, if you want a loan, you can go to a bank such as Chase, you can use an online bank such as Ally Bank, you can use a peer-to-peer company such as the Lending Club, you can get a credit card loan from a digital wallet such as PayPal, and you can get a loan from a money company such as Capital One, Discover, and many more.
You have money choices. It isn’t just credit unions vs banks.
Do Banks Have Better Technology?
Banks have more incentive to adopt technology quicker because it gives them an edge over their competition. There are some credit unions that do not have mobile apps, and some that have very poor online services. However, credit unions are still market motivated; they are just not as market-motivated as banks. Banks are typically very aggressively market-motivated because they need to remain market-competitive in order to survive. Banks have better technology and better security, but that is often because they are years ahead of credit unions. Credit unions do have to catch up eventually; they just take a little longer to get up to speed.
Credit unions do catch up with the technology of others eventually
Conclusion – Who Wins With Credit Unions Vs Banks?
Nobody wins. It is a matter of choosing the company/bank that is best for you. The fact we have so much choice these days is fantastic. You can pick and choose the company that fits your needs.
Here is a quick example to show you what I mean; they are the accounts I hold that I can remember off the top of my head:
High Street Bank – business account
High Street Bank – checking account
Digital Wallet – receive foreign payments
Credit Union – variable-rate CD
US Government – bonds
UK Government – bonds
Peer-to-peer company – savings account
Online Bank – stock trading
Vanguard Group (Investment Management Company) – IRA
Capital One (Financial company) – emergency credit card
Those are just the accounts I have off the top of my head, and I am not alone in this matter.
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In an era when people can buy car insurance from their local supermarket chain, and deposit money into an account by photographing a check, you have more options and choices than ever before. It is not simply a case of credit unions vs banks.