In the past, we have talked about banks and credit unions. But they sound very similar. Can you please help me understand them better?
Both banks and credit unions are financial institutions that help people with their basic financial needs – they accept deposits, provide loans, offer checking and savings accounts, credit cards, etc.
So what are the differences between banks and credit unions?
Banks are usually corporate entities that operate to make profit, whereas credit unions are not-for-profit organizations and are owned and operated by their members. While banks may offer their services to anyone that qualifies for them, credit unions offer their services only to their members.
As a customer, what are the advantages of credit unions compared to banks?
Credit unions usually offer higher interest rates on deposits and charge lower interest rates on loans compared to banks. Their fees are also usually lower than banks. Also, since credit unions are operated by and provide service to their members, the quality of service is typically much better at credit unions than at banks.
Are there any disadvantages of credit unions compared to banks?
Yes. To use the services of credit unions, you need to meet the eligibility criteria to become a member. Also, because of their smaller size, credit unions typically have fewer physical locations and may not offer all the products and services offered by larger banks. Credit unions also lag behind banks when it comes to technology aspects like their websites and apps.
What about safety? Are deposits in credit unions insured, like the deposits in banks?
Yes. While deposits in most banks are covered up to $250,000 per depositor by the Federal Deposit Insurance Corporation or FDIC, the deposits in most credit unions are also covered up to $250,000 per depositor by National Credit Union Administration.