Banks and credit unions are two of the main places people choose to invest their greenbacks, but how do you know which option is right for you? Although banks and credit unions offer many of the same services, there are distinct differences in the way they conduct their business.
Who is the boss?
One of the biggest differences between banks and credit unions is the possession. The banks are largely owned by shareholders who have invested in the bank. Credit unions, on the other hand, are financial cooperatives owned by their members. Once you join a credit union, you are a co-owner.
Due to the marked differences in ownership, the goals of credit unions and banks differ. Banks aim to satisfy their shareholders by making a profit from their activity. Their profits are made through interest rates, loans and fees. Credit unions, on the other hand, are non-profit cooperatives.
Advantages and Disadvantages of Credit Unions
One of the main advantages of belonging to a credit union is that the potential profits that they accumulate are redistributed to the members of the cooperative, usually in the form of perks, such as favorable interest rates and the no minimum balance requirements. .
In addition, since the members are themselves a collectively owned group, they can have a say in the decision-making and operation of the credit union. Often, the board of directors of a credit union is made up of other members of the union who have actually volunteered to serve on the board of directors. Members of credit unions often have a connection to each other, whether it is a workplace or a regional association. Many credit unions are therefore also active in their communities.
While credit unions have many desirable traits, they also have their drawbacks. One of the main drawbacks of credit unions is that they can be difficult to access. Credit unions tend to be more rigid in their approval process than banks. Additionally, members of credit unions who have credit cards may be disappointed with the lack of rewards for those who make consistent payments.
Advantages and disadvantages of banks
One of the main reasons people choose banks over credit unions is convenience. Major banks such as Chase, Comerica, and Bank of America have branches and ATMs across the country. This can come into play if you are looking to avoid frequent ATM fees. In addition, members of banks have traditionally been able to take advantage of more options through their banking experience than members of credit unions. Online banking and transferring funds via iPhone or Android have now become central parts of the banking experience. Many credit unions have yet to adopt such mobile technology.
the large number of costs that go hand in hand with banking remains one of the biggest drawbacks. Some of the many fees that banks often charge include minimum balance fees, returned deposit fees, and overseas transaction fees. These can add up quickly and can often take customers by surprise. Another downside of going with a traditional bank is that customers may be subject to lower interest rates on savings accounts and higher loan and credit card rates. Banks need to make money at the end of the day, so APRs can be higher when you are dealing with them. This is why, when making a large purchase such as a car, it is often advantageous to obtain a loan from a credit union.
Both banks and credit unions are good options, and which one you choose will likely depend on the pros and cons that are most relevant to your situation.
We would love to hear your thoughts. Which route is the best? Share your opinions in the comments section below, then check out our tips for choose the right bank.
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