Banks vs Credit Unions - Four Differentiating Factors
When it comes to financial institutions, banks and credit unions out rank alternatives. While they both offer similar services, their business models create various differences. A bank is a for-profit business that takes deposits and makes loans. Banks operate under charters and report to both state and federal regulators. A credit union is a non-profit organization that is governed by members. Membership for credit unions are based on certain socioeconomic factors, such as location or job.
Choosing a financial institution for personal or business can be a tedious decision with the smorgasbord of options institutions offer. Let’s take a look at four different factors between banks and credit unions to help you understand which better suits you.
Banks and credit unions both offer a wide range of products and services, including: checking and savings accounts, money market accounts, home loans, auto loans, small-business loans, and credit cards. Different products are utilized by different individuals, including children! Many credit unions allow children under the age of 13 years to open an account with a legal guardian; once the child is 13 years old, he/she can open accounts on his/her own. Bigger banks do not allow individuals to open a checking account until the age of 14 years, but until the age of 18 years this account must have a legal guardian co-owner.
While both offer various products, the rates and fees differ. As for-profit institutions, banks charge higher fees to cover their taxes and in-house operations, as well as aim to make money for the investors and stockholders. Credit unions on the other hand, charge lower fees as a result of allocating the profits back to its members, after covering overhead costs. These profits exist since credit unions are non-profits and do not pay federal income taxes. They do however pay other federal, state and local taxes.
Both banks and credit unions are covered to protect consumers under current laws. Banks are covered by the Federal Deposit Insurance Corporation up to $250,000 of insurance per person. Credit unions are covered by the National Credit Union Association, also for $250,000 of insurance per person. Essentially, money is safe at either institution. Additionally as the world becomes more digital, both institutions ensure safety of personal data with the highest level of encryption.
Most banks are nationwide, unlike credit unions that are usually local. This means that banks do have more branch locations and ATMs. Although, many credit unions participate in the CO-OP Financial Services. This CO-OP provides members with access to accounts and to conduct business nationwide at any credit union location or ATM with the shared branch network. Another pro of this CO-OP is that members will not be charged for operation at any participating locations, unlike banks that charge fees for using other banks' ATMs.