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How are credit unions and banks different?

Credit unions and banks offer similar services, but there are some surprising differences that can impact which one you choose

Credit unions and banks are financial institutions that offer similar services, but there are some key differences between the two that can make an impact on where you choose to put your money.

How are credit unions and banks different?

The major difference in credit unions and banks is credit unions are member-owned, not-for-profit financial institutions that put their profits back into their members through lower fees and better rates.

Banks are for-profit institutions owned by shareholders with the primary goal to maximize profits for their shareholders.

Both credit unions and banks offer similar services, such as checking and savings accounts, loans, and other financial products. But there are surprising differences that may impact whether you choose a credit union or bank.

Why Choose a Credit Union?

Membership. Credit unions usually have membership criteria based on factors like where you live, work, or go to school, your profession, or membership in a certain organization or group.

Democratically controlled. Credit unions are unique among financial institutions in the United States as they are controlled by unpaid members who serve on a board of directors. These volunteer board members oversee operations and make decisions that prioritize the best interests of credit union members.

Specialized services. Credit unions can tailor loans and financial services to members based on their similar background. For example, School First Federal Credit Union offers a variety of loans just for school employees including:

  • Auto Loan with Summers Off
  • School Employee Credit Card
  • Classroom & Supplies Loan
  • Uniform Loan for classified school employees

Credit building services. Credit unions typically have credit builder loans that are essentially personal loans for bad credit that can help members improve credit scores.

Flexible underwriting standards. The culture of credit unions is member-focused, not profit. They are likely to have more flexibility in the underwriting process to work with you if you have imperfect credit or need to extend a loan payment.

Investment in the community. Credit unions often invest a portion of their assets in local communities. This can include financing community development projects, such as affordable housing or infrastructure improvements, investing in local businesses and organizations, or giving back to their communities through charitable donations and volunteer work that address local social issues.

Why Choose a Bank?

No membership requirements. Banks don't have membership requirements and are open to anyone that qualifies to open an account.

Investing services. Many banks provide investment accounts and financial advisory services in addition to standard banking products.

Physical branches and ATMs. Hands-down banks have more physical locations and ATMs than credit unions. Many customers manage their accounts online but there are times when a visit to a bank location may be necessary. 

Federal Depositor Insurance. Banks are insured by the federal government through the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor.

For-Profit vs. Non-Profit

Credit unions are financial cooperatives that exist to serve the financial needs of their members. As member-owned institutions, credit unions are structured to provide their members with lower-rate loans on autos, homes, and personal finances than large banks. Any profits made by credit unions are returned to their members, who enjoy higher savings account rates, reduced fees, and lower loan interest rates.

In contrast, banks are for-profit entities often owned by investors, with customers having no say in how the institution is run. Bank management teams make decisions on a day-to-day basis that are in the best interests of the bank, rather than the bank's customers. Plus, big banks are notorious for paying low rates on savings accounts, for example, Chase, Bank of America, and U.S. Bank pay 0.01% APY. 

Credit Unions Have Coops

A credit union co-op (cooperative) is a group of credit unions that have come together to collaborate and share resources to better serve their members.

It is a way for credit unions to collaborate and provide more value to their members by offering a wider range of services and benefits.

Credit union co-ops are often formed at the state or regional level, although some are national in scope. The purpose of a credit union co-op is to provide a wider range of services and benefits to members of participating credit unions.

By pooling resources, credit union co-ops can offer services that may not be available at a single credit union, such as shared branches and surcharge-free ATM networks.

Shared branching allows members of participating credit unions to perform transactions at any of the shared branches, regardless of which credit union they belong to.

This means that members can access their accounts and conduct transactions when they are away from home, without incurring additional fees. Surcharge-free ATM networks provide members with access to ATMs without having to pay a fee.

How many credit unions in the United States

There are more than 4,800 federally insured credit unions in the United States, with over 134 million members, according to the National Credit Union Administration (NCUA).

How to join a credit union?

Joining a credit union typically involves the following steps: Find a credit union. will help you find and review

Find a credit union. The credit union locator tool lets you search for a credit union near you and review basic information. For people unable to find a local credit union, consider an online credit union anyone can join.

Determine eligibility. Credit unions usually have membership criteria based on factors like where you live, work, or go to school, your profession, or membership in a certain organization or group. Check the credit union's website or contact them directly to find out if you meet the eligibility requirements.

Complete an application. Once you've determined your eligibility, you'll need to fill out an application for membership. This usually involves providing personal information like your name, address, social security number, and other identifying information.

Open an account. After your application is approved, you'll need to open an account with the credit union. This may involve depositing a minimum amount of money or purchasing a share in the credit union.

Provide verification. You may need to provide additional documentation to verify your identity and eligibility for membership. This could include things like a driver's license, passport, or proof of address.

Are Credit Unions FDIC-insured

No. Only banks are FDIC-insured. However, credit unions are insured by the National Credit Union Administration (NCUA) that protects the deposits of credit union members. This insurance functions much like FDIC insurance, insuring up to $250,000 per share owner, per insured credit union, for each account ownership category that is backed by NCUA. 


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