Credit Unions vs Commercial Banks
Credit unions are providers of financial services and may cater to your needs
A credit union is a financial institution that is owned by its customers. Most credit unions are tied to a specific community, sometimes towns or cities, but also groups like unions or employees from certain companies. Some credit unions have specific goals like local economic development and many international organizations establish credit unions in developing countries to further local enterprise. What you need to know is that credit unions offer the same services as banks with a few key differences.
One thing to be aware of is that credit unions tend to be smaller than banks. The average US bank is 16 times larger than the average US credit union. This may not seem like a big deal until you consider ATM and branch coverage. Using a credit union for your checking account could result in hefty withdrawal fees especially if you are away from home.
Credit unions are customer owned, so by opening an account you usually become a ‘member’ of the credit union. This may be a simple formality and the process can be like opening an account anywhere else, but there may be additional member responsibilities such as voting for credit union officers and management. There may also be pre-requisites for becoming a member such as military service or being a government employee. There is also a different terminology for credit union services. A savings account is called a “share account” while a checking account is a “share draft.”
Commercial banks, as their name suggests, are for-profit institutions, whereas credit unions are generally non-profit. They exist solely to service their customers, who are also their owners. This means that most credit unions choose interest rates based on a democratic process amongst their managers and this can result in lower interest rate loans for credit union members.
Some people choose credit unions over other financial institutions for the promise of better service. Since credit unions are customer owned they generally claim a high quality of customer service. Customer service can be a deciding factor when it comes to choosing a company to handle your money.
The key to evaluating a wide range of financial services is to shop around, but this can be costly in terms of time and money (if you hoof it to different banks). HelloWallet has a proprietary database of over 130,000 bank products and will match you with financial products that meet your personal needs. As America’s #1 online financial guidance professionals, HelloWallet gives you unbiased advice that increases your financial fitness. We are completely bank independent so we will steer you towards institutions (credit unions or banks) that serve your needs as opposed to our pockets.
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