Here’s a comparison of credit unions and banks touching on each of the key differences between the two. Use this information to make a more informed decision about where to keep your money and seek financial products.
Not-for-profit, member-owned cooperatives
For-profit, and owned by a few shareholders
Use of Profits
They use the profits to offer better interest rates to their members. Their not-for-profit states makes them exempt from state and federal taxes. Their budget for advertising and marketing is meager compared to that of banks.
They use the net profits to pay to their shareholders in the form of dividends and share buybacks. They must pay state and federal taxes on their corporate profits.
While credit unions do charge some of the same fees as banks (Such as bounced check and overdraft fees), they are lower than those of banks, explained by their exemption from paying state and federal taxes and goal of serving their members rather than profiting.
Bank fees are higher than those of credit unions, going back to their objective of generating as much profit for their shareholders as possible.
More attractive interest rates on savings accounts, etc., are usually offered, explained by their exemption from paying state and federal taxes and goal of serving their members rather than profiting.
The interest rates of savings accounts, etc., is generally lower than that of credit unions, going back to their objective of generating as much profit for their shareholders as possible.
Insurance on Deposited Funds
Deposits with federal credit unions are backed by the National Credit Union Share Insurance Fund (NCUSIF) for up to $250,000 across all deposits an individual has with an institution. State-chartered credit unions may have their own state or private insurance if they aren’t backed by NCUSIF.
Bank account deposits are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per depositor, per institution, and per ownership category.
Self-governed; each member has one vote in the election of the board of directors regardless of the amount of money deposited.
Stockholders vote in elections for the board of directors based on how much stock they hold.
Credit unions strive pool resources such as locations and ATMs to provide convenience and savings to their members. While they have fewer ATMs of their own, they are more likely to have nationwide networks of ATMs and reimburse ATM fees to their members.
Given the competitive nature of banks, they are far less inclined to share resources and have their own locations and ATMs.
Mostly the same products are offered at credit unions and banks, though they have different terminology and minor variations in functionality.
Many credit union account products include the word “share” in product names because members have a share, or partial ownership, in the credit union. Rather than make deposits as with banks, members purchase shares.
“Share-draft accounts” are credit unions’ version of checking accounts.
“Share drafts” are the equivalent of bank checks.
Savings accounts at credit unions are called “regular shares,” and they earn dividends rather than interest, which behave just like bank savings account interest.
Credit unions’ version of a certificate of deposit is called a “share certificate.”
Most of the time, you’ll be better off at a credit union than at a bank. There are some checking accounts offered by banks that aren’t so bad—Simple, for instance, doesn’t charge any fees whatsoever (not even overdraft fees).
If you are looking for an account with an impressive interest rate with which you can put your emergency fund to work, look at high-yield savings accounts (5%–6% APY).
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