With so many financial institutions available, it can become overwhelming to know which ones to choose. Most people think of commercial banks whenever they want to consider saving money or doing some form of investment. After all, regular banks have existed for a long time, meaning they’re well-versed with all aspects of helping their clients with savings and investment issues. However, other avenues exist. Among them are ones like this credit union in Syracuse. While not very popular like the big banks, these institutions can offer some great benefits for those who choose to conduct business.
It’s important to understand that, for many customers, banks and credit unions offer the same thing: money management. While this is true to a large extent, some key differences set them apart.
To understand these differences, it’s crucial to begin by examining how these two types of institutions are similar.
- Mobile banking, Automated Teller Machines (ATMs), and overdraft protection are some of the features and services offered by both banks and credit unions. True, most banks have an extensive network of ATMs compared to credit unions. However, some credit unions make up for this lack of wide coverage by reimbursing withdrawal fees, allowing their members to get money from independent ATMs.
- Both credit unions and banks offer deposit protection. The Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) enable this for banks and credit unions respectively. This protection deposit amounts to $250 000 per account holder.
Banks and credit unions share several other features, like offering money market accounts, home loans, credit cards, among others.
The differences between credit unions and banks are usually in their structure and some of the services offered. These include:
- Profit vs. non-profit
Banks are financial institutions in the business of making a profit. With billions of dollars flowing through them every year, banks make their money from fees, bank charges, among others. This means they also pay taxes. Many banks have a board of directors to whom the managers and CEOs must answer. Many such banks are publicly traded companies.
Credit unions are exempt from taxes, usually at the federal level, because of their non-profit designation.
It’s crucial to remember credit unions charge lower fees compared to banks. Because of being exempt from taxes, credit unions can charge much lower fees. The benefits of tax exemption are passed on to the members in different ways, including low interest on loans and higher rates on savings accounts.
Banks charge much higher fees because they’re usually concerned about their profit margins, which can be affected by the taxes they pay.
- Membership vs. no-membership policy
Nearly every bank will do business with any individual regardless of their affiliation, as long as such individuals are not people with a history of banking problems. Those experiencing legal troubles like money laundering could also hinder banks from conducting business with them for fear of legal repercussions.
On the other hand, a credit union is not open to every person. Membership is key. A credit union is owned collectively by its members. This membership is usually rooted in sharing a common bond, be it a religion, work industry, or some other profession. As such, eligibility is not open to a lot of people. Most credit unions are very strict regarding the issue of membership, forbidding outsiders or those with no ties to their members from joining. A few of them can have membership for those willing to pay a certain fee.
Credit union members usually elect a volunteer board to run the organization. Profit-making for third parties is not a motivation for those elected because they’re also members that do their banking in-house, meaning it’s in their best interest (and the union’s) that things go smoothly.
- Personal service vs. more services
The feelings of community and shared camaraderie among credit union members mean that personal service and attention are more likely to be accorded to members. Size is also a factor, with many credit unions consisting of a fairly small number of members. Many credit unions also don’t offer other services like commercial loans. Banks are usually large institutions, sometimes spanning multiple countries and jurisdictions. This means that there’s a standard way of dealing with customer issues, regardless of the unique nature of each customer’s concern.
Banks are also better equipped to serve their customers over a large geographical area because of their reach and significant resources compared to credit unions.
Ultimately, whether you choose a credit union or bank will depend on the unique financial services you require.