Are banks or credit unions better? This is a subject I am very adamant about. There are so many facets of the debate between these two financial institutions, and I have no qualms defending what you will obviously see is my preference!
What’s the main difference? How do you define a bank and a credit union?
What is a bank? What is a credit union? I’ve talked to many of my friends and family about the difference between the two, and why the one is better than the other.
Simply put, both banks and credit unions are places to store money in the form of checking, savings, and other types of interest bearing accounts, and places to get mortgages, car loans, and other types of interesting paying accounts.
So why is one better than the other?
A bank is a for-profit business. They loan money out, charge interest on those loans, and take money in, and pay interest on those savings. After other business expenses, the bank should have a profit (although not always like the case of the $2 Billion JP Morgan Chase loss) from having higher interest payments coming in from loans than the interest paid out for savings.
Nothing wrong with that, right? Well, as far as businesses go, no, that’s pretty standard. You buy a product, and hope to sell it at a profit, after expenses.
The main difference between a bank and a credit union is that a credit union is a non-profit organization. What does this mean for you and me? A credit union simply doesn’t have the incentive to make a profit. They are ultimately responsible to their members (customers – you and me) instead of stockholders. And since they are only paying business expenses, and not trying to make a profit on top of that, they are able to offer savings accounts and checking accounts with higher interest rates, and loans at lower interest rates than banks.
Some of you may be concerned that your money is not as safe at a credit union as it is at a bank, as bank savings are protected by the FDIC limits, or Federal Deposit Insurance Corporation. However, credit unions have the same protection, just through a different agency: The NCUA, or National Credit Union Administration. Your money is as safe at a credit union as it is at a bank.
One other important aspect of credit unions is that, as opposed to banks, not everyone can join a particular credit union. You have to be part of what is called a “member eligibility” group. Some credit unions have very large eligibility groups. Navy Federal Credit Union, for example, allows membership for anybody serving in the military, working or contracting with the Department of Defense, and all of their close family members. Smaller, local credit unions usually have stricter requirements, but most allow membership for those living or working in a given area.
So, credit unions are better?
Most definitely! With lower loan interest rates, higher savings interest rates, and (generally speaking) better customer service, you get all of the benefits of a bank, but a much better experience with a credit union. If you still use a bank for your financial needs, I highly recommend changing to a credit union.
How do I find a credit union?
The NCUA has a great website, ”Find a Credit Union” where you can put your work or home location in to find a credit union near you. You should be able to find one that you qualify for membership from this web site.
So what’s next? Move that money, baby! When I switched to a credit union, I moved my savings and checking first, which is a straightforward process. Later, when I refinanced my mortgage, I did so at my credit union. Once you’ve got everything moved over, say goodbye to banks for good! You’ll thank yourself in the long run.