Brittany
Financial institutions play a significant role in helping people achieve their financial goals. A few years ago, many people relied on banks as their go-to option, but more and more people are now leaning towards credit unions. So, what is the difference between a bank and a credit union? Both institutions offer financial services, but they have significant differences.
The advantages of joining a credit union stand out, whether a client is looking for lower transaction fees, better interest rates, loan products, or exclusive offers on travel, insurance, and support through their partners. This article explains why more people are selecting credit unions over traditional banks.
Organization Structure
Banks are established to make a profit, but credit unions operate as non-profit organizations. Unlike traditional banks, credit unions are owned by the members, where each member can share their opinion on how the organization is run. Individual members can participate in planning meetings and electing the board of directors.
Anybody can open a traditional bank account, but credit unions target specific people and operate in a defined geographical region. For instance, a credit union in Flagstaff, Arizona, will likely serve members from the city and the surrounding areas. The members must belong to a specific group or be affiliated with a particular organization, association, or religion. However, most traditional banks serve clients from different backgrounds without a specific criterion.
Fees and Rates
Traditional banks are associated with high transaction fees and interest rates on credit products. Banks have low rates on deposits, high service charges, and high interest rates on loans. They use this business model to make money from their clients. However, credit unions charge lower rates and pay higher rates on deposits.
Unlike banks, credit unions should reinvest their income to benefit their members. This is because they function as non-profits and enjoy relevant tax benefits. Therefore, credit union members are assured of reliable technology, support programs, higher deposit rates, and lower interest rates.
Customer Service
Although banks value their clients, they are there to make money. Therefore, they have fewer incentives to provide outstanding services and only care about gaining a competitive edge over other banks.
On the other hand, credit unions focus on creating a community that addresses the unique needs of the members. So, they offer customized service to their members and create a welcoming atmosphere that makes members feel valued. Credit union members are likely to meet staff members who know them by name and understand their needs, unlike in a bank setting, where clients are numerous and have diverse needs.
Branches and Networks
Banks are more convenient than credit unions because they have many branches and affiliates in different locations. When clients visit a new state or country, they will likely find a branch or a local partner where they can access financial services. Credit union members may not have easy access to financial services in some locations.
However, with tech solutions such as mobile and online banking, people rarely visit physical branches for financial services. The leading credit unions have advanced banking technology that allows members to access their accounts and transact conveniently as long as they have internet access.
People seeking financial services might be torn between traditional banks and credit unions. Although the decision depends on what they want to achieve, credit unions offer more perks to their members. So, people looking for low interest on loans, high rates on deposits, specialized financial services, and discounted loan rates should consider a credit union.
