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.
More ways credit unions and banks differ
- Membership. Credit unions are generally only open to people who share a common bond, such as living in the same community, working for the same employer, or belonging to an organization. Banks are open to anyone who meets their eligibility requirements.
- Customer service. Credit unions are often praised for their personalized service and focus on member needs, while banks may prioritize profit and shareholder interests. Credit unions have much higher customer satisfaction rate than banks due to their ability to provide personalized service and better rates. They're also usually more community oriented, often donating money to local causes and offering services to those in need.
- Fees and interest rates. Credit unions may offer lower fees and higher interest rates on deposits and loans because they are not-for-profit and return earnings to their members. Banks may charge higher fees and offer lower interest rates to maximize profits.
- Services. While both credit unions and banks offer similar services such as checking and savings accounts, loans, and credit cards, credit unions may offer more specialized products and services tailored to their members' needs like credit builder loans that are essentially personal loans for bad credit. On the other hand, many banks provide investment accounts and financial advisory services in addition to standard banking products.
- Physical branches and ATMs. One of the main draws of banks is their physical locations. Many people like having access to bank tellers and ATMs—preferably right in their neighborhood. Though a lot of banking occurs online nowadays, sometimes there’s a need to visit a branch or take out cash, making banks preferable to credit unions for certain consumers.
- Depositor money is insured.
Do credit unions high yield savings accounts
Interest rates offered by credit unions are consistently lower than those of banks. As of December 2018, the five-year loans for new cars at banks had an average interest rate of 5.04 percent, while the same loan averaged 3.57 percent at credit unions. Additionally, online banks and online credit unions often offer higher rates on savings accounts compared to traditional financial institutions.
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Interest rates on savings and loans at credit unions are often lower than those offered by banks, making them a desirable option for many consumers. The National Credit Union Administration found that in December 2018, credit unions had an average interest rate of 3.57 percent for five-year car loans whereas banks had an average rate of 5.04 percent. Additionally, for the past few years online banks and credit unions have been offering higher interests rates on savings accounts.
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Interest rates offered by credit unions are generally lower for loan products, such as auto loan and mortgage loans, than those from other traditional lending institutions like banks. Savings account interest rates tend to be higher at credit unions compared to banks as well. As of December 2018, the average 5-year loan for a new car had an interest rate of 5.04 percent at banks, while it was only 3.57 percent at credit unions. Online banks and online credit unions usually offer the best rates for depositors looking to make a profit from their savings accounts.
On average, credit unions offer lower rates on loans and higher rates on savings accounts – just what consumers want. The National Credit Union Administration reports that as of December 2018, the five-year loans for new cars at banks had an average interest rate of 5.04 percent, compared with 3.57 percent for credit unions. For several years now, the online banks and online credit unions are where consumers are getting higher interest rates with their savings accounts.
Are banks better than credit unions
How many credit unions in the United States
Are credit Unions FDIC-insured
In 1970, the National Credit Union Administration (NCUA) was established to provide insurance to members of credit unions in the event of the institution's closure. 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. Most state and federal credit unions are protected by the NCUA and must visibly advertise this status in their branches. Consumers can visit the NCUA website to double check whether their selected financial institutions are covered.
It's important to note that both credit unions and banks are federally insured, which means that deposits up to a certain amount are protected by the federal government. Ultimately, the decision to choose a credit union or a bank will depend on your individual needs and preferences.
Unlike banks, credit unions distribute any profits amongst their members so that they can benefit from their money.