When you’re looking for the best place to store your money, you might be torn between going with a bank or a credit union. These two types of financial institutions have a lot in common: both can offer free checking accounts, both can set you up with loans and savings accounts, and both usually have a number of ATMs that members or customers can use to withdraw money.
So, what are the main differences between banks and credit unions, and which gives you the most bang for your buck? Let’s take a closer look.
The main difference between banks and credit unions is who owns these institutions. Banks are owned by their investors, meaning that they operate for profit and are businesses in a traditional sense. Banks have customers, and the people who invest their money in a bank don’t get a say in how the bank is operated.
Credit unions are quite the opposite. Credit unions are owned by the people who invest their money in them. At a credit union, you’re not a customer, you’re a member. Your membership earns you the right to have a vote in how the credit union is run. This has a big impact on the nature of both institutions.
Legally, credit unions have to limit who can join to a “field of membership”. This is a category that can be stipulated in a variety of ways, but typically involves something like what company members need to have worked for, where members live or if members have joined certain organizations.
This does mean that you can’t just join any credit union. Often, you’ll need to look for a local credit union that allows you to become a member due to your residency in the same locality or town as the credit union. Some national credit unions have workarounds, though, like allowing members to join a private organization by paying a small fee, after which they are in the field of membership.
Generally speaking, credit unions offer better interest rates on savings accounts, lower interest rates on loans, and free checking accounts that don’t have high minimum account balances. This isn’t to say that they’re always better than banks, per se. However, most people looking for the best deals on bank accounts should look into their local credit unions first before they open up an account with a national bank.