Banks or Credit Unions

Banks or Credit Unions?

Simply put, credit unions and banks are not the same. Most people if asked couldn’t explain the difference, however, as an educated consumer you should know how the two institutions differ in order to get the best deals.

As opposed to a bank, a credit union is owned by its “members” or customers, and is a non profit organization that strives for service and flexibility, whereas banks answer almost exclusively to profitability. Bank shareholders own a part of the institution and expect a high beneficial financial performance by the administrators. Note: credit unions are nonprofits, however they are not charities. Credit unions must make sound financial decisions.

For many, the main advantage of credit unions is that they charge lower interest rates for credit. The average credit union credit card runs at 12.15% interest annually compared with 15.08% for the average bank credit card. Additionally, most credit unions charge no annual fee for credit cards and offer free checking accounts. And like some banks, credit unions usually require only very little money to open an account.

Of course, the reason behind the lower rates is that credit unions are non-profit organizations and as such do not pay Federal or State taxes, allowing them to offer lower interest rates to their customers/members.

Average interest rates at credit unions vs. banks

Consumer loans	Credit unions	Banks
Credit card	11.64%	12.76%
48-month new car	5.46%	6.91%
48-month used car	5.72%	7.50%
36-month unsecured	10.60%	12.47%
Mortgage loans
HELOC	4.70%	4.90%
Five-year ARM	5.54%	5.71%
30-year Fixed	5.44%	5.58%
Savings
Regular savings	0.68%	0.44%
Interest checking	0.48%	0.36%
Money market	1.22%	0.62%
One-Year CD	2.93%	2.26%

Credit Union Offerings

Credit Unions offer many of the same financial services as banks, though sometimes under different names. Most commonly utilized by members are share accounts (savings accounts), share draft (checking) accounts, credit cards, share term certificates (certificates of deposit), and online banking. *Your deposits are called shares because they represent ownership in the institution (like shares of stock). Normally, only a member account holder may deposit money with the credit union, or borrow money from it.

Being that American credit unions on average are smaller than banks (the average U.S. credit union has $93 million in assets, while the average U.S. bank has $1.53 billion, as of 2007) they for the most part can’t afford to have “loss-leaders”, or products that simply get customers in the door. Credit unions will more likely only offer the products and services that a large portion of their members are likely to use. However, credit unions are widely regarded as providing superior member services and a commitment to helping members improve their financial health when compared to banks. Credit unions also provide a broader range of loan and savings options at a lower cost to their members then do most banks.

A disadvantage of a smaller Credit Union is they may have fewer branch offices and less access to ATMs than a large national or international bank.

Credit Union Deposit Insurance

You may ask, "Is my money and savings safe with a credit union like it is with a bank?" The answer is yes! Credit union deposits are insured very much like your bank deposits. If you have a bank account, your deposits are insured by the Federal Deposit Insurance Corporation (FDIC). If you have a credit union account, your deposits are insured by the National Credit Union Administration (NCUA). The two organizations are different; however, the quality of insurance is the same - backed by the full faith and credit of the US government. The rules on the limits are the same as well: $100,000 per depositor per insured credit union and the limit increases to $250,000 for certain retirement accounts.