credit union vs bank

What is the difference between a credit union and a bank?

My local bank keeps sneaking in new fees.

As a result, I recently switched a few of my bank accounts to a credit union.

Credit unions are not-for-profit financial cooperatives.

Credit unions serve groups of members who have something in common… such as employment at a company, membership in an association, or a home in a particular geographic area.

Credit unions are like traditional banks. They both offer financial products and services such as access to checking and savings accounts, CDs, loan products, and credit cards.

We are able to set up a savings account (which they call a “share” account), buy a Certificate of Deposit (i.e. CD), get an auto loan and even apply for a home mortgage.

A credit union is like a bank. The main difference is credit unions are non profits. They only exist to serve its members. As a result, credit unions often have better interest rates than other banking institutions.

With a bank, we are a “customer.”

But with a credit union, we are a “member.”

A bank’s percentage of profits goes to shareholders. A credit union’s percentage of profits is returned to its base of members.

These are the pros and cons of credit unions vs. banks

Pros of joining a credit union:

Free accounts

Most credit unions do not charge account-maintenance fees, or loan arrangement fees.

The latest surveys show 3 out of every 4 credit unions offer FREE checking and savings’ accounts. Only 4 out of every 10 traditional banks offer free accounts (and that percentage continues to dive lower).

Our initial membership deposit opens a credit union account. After that, that is it. We never pay a monthly “maintenance” account fee ever again. And 100% of our initial deposit are ours to spend as cash.


Higher interest rates

Banks loan out money they create out of thin air.

They loan out at least 10 times the amount they have on deposit.

Banks make money by loaning out this money they create. It is called credit (M3). They charge interest on this credit they create…

… Credit unions can only lend out what people deposit into their credit union. Credit unions cannot create money out of thin air through fractional reserve banking.

As a result, credit unions pay higher interest rates on deposits.

(Credit unions only receive 10% of the interest income that regular banks get, because they cannot lend out 10 times the deposits.)

And the best part is when our credit union is profitable, we might get a surprise, bonus dividend on our savings’ balance.


Bigger safety net

Credit unions are financially stronger than banks.

For every 100 bank failures, about 20 credit unions fail.

Both offer their “customers” and “members” free insurance on their funds (currently up to $250,000).


Faster, easier loans

With a credit union, we typically get a loan decision within a day or so.

Plus, credit unions offer lower interest rates on credit cards and loans than banks.

And closing costs are usually much lower than those paid through a conventional lender.


Free coin counting

Credit unions count our unwrapped coins for free.

Most have a self-serve coin-counting machine (usually found in their lobby).


Lower ATM fees

As a member, it is always free to use a credit union’s cash machine.

Banks are the same way.

But when credit union members use an out-of-network ATM, the fees average 36% less than a typical bank’s surcharge.


Lower overdraft charges

Credit union bounce-check fees are about 15% less than traditional banks.


Cheaper car loans

In most cases, credit unions offer more benefits for those buying a car.

Savvy car shoppers get a pre-approved loan from their credit union. This way, we know EXACTLY how much car we can afford to get before entering an auto dealer’s showroom.


Bad credit is okay

Those with less-than-stellar credit might be able to find more flexibility with their credit union.


Cons of joining a credit union:


Membership requirements

We can walk into any traditional bank and open an account in minutes…

… But most credit unions are different.

They require a relationship with a group.

For example, a corporation’s credit union may only accept employees and their immediate family members.

A credit union for teachers may accept any teacher who works for a certain school district.

A few credit unions have more relaxed requirements and may simply request that members live in a certain city or area.


Mortgages cost more

Surprisingly, banks offer lower interest rates on home buying than a credit union.

Less convenience

Some banks have branches and cash machines available throughout the country or region…

… But credit unions have fewer branches (and even fewer ATMs).


Less options

Big banks have invested heavily with online banking.

Credit unions are behind the curve a bit.

Foreign currency transactions and automatic bill payments are still more robust with traditional banks.


Less rewards

Big banks leverage their “bigness” and typically offer juicier credit card reward perks.


So which type of bank should we choose?

Personally for me, since it costs me nothing, I switched one of my bank accounts to a credit union. And I opened a credit union account for both of my boys.

And so far, the experience has been 100% perfection.

Published by

Markus Allen

Family man. Truth seeker. Life hacker... more about me here...


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