People today have an unprecedented number of banking options to choose from. There are pros and cons to this.
On the plus side, people have more control than ever before over how they manage their finances. But the downside is that all of these choices can also make it very difficult to figure out which banking option is best for you.
One comparison that you might be making is between banks and credit unions. We put together this article to help you do that. Keep reading to learn everything that you need to know to decide whether the advantages of picking a credit union over a bank outweigh the disadvantages of doing so.
How do credit unions differ from banks?
The key difference between banks and credit unions is the motivating principle behind each type of company.
Banks are for-profit corporations that are often publicly traded on stock markets. This means that a bank’s primary purpose is to provide its shareholders with strong returns on their investments.
Credit unions are owned by members, not investors. They’re set up as non-profit cooperatives instead of for-profit corporations. This means that a credit union’s primary purpose is to provide its members with the best financial products and the best terms possible. That’s a pretty big difference from a bank’s organizing principle.
This core difference shows up in many of the different services, features, and products that banks and credit unions offer. We’ll get into the specifics of this in the following sections.
Advantages of credit unions
Credit unions have several key advantages over banks. Here are some of the most important ones.
Credit unions generally have lower fees than banks. That’s because they aren’t concerned about making a profit like banks are.
Better savings rates
You can also usually expect to earn more interest on your savings account at a credit union than you would at a bank.
Once again, this comes from the fact that credit unions are non-profits looking to provide their members with the best financial products. Banks only offer rates that are high enough to attract more customers from whom they can profit.
More committed to members
You’ll also find that credit unions are more committed to their members than banks are, and there are a few reasons for this.
One reason is that credit unions are almost always smaller than banks. That means they tend to form more personal connections with their members. Customer service agents also receive fewer calls, which often gives them more time to devote to each customer.
The non-profit focus of credit unions plays a role here as well. Their main goal is to provide their members with a great experience, and offering excellent customer service is a big part of that.
Many credit unions will give their members voting rights when there are important decisions to make, which is something that banks rarely offer. This could be a big benefit if you want to play a role in shaping the future of the financial institution that you bank with.
Disadvantages of credit unions
Fewer branches and ATMs
This is the credit union disadvantage that often has the biggest impact on customers. Credit unions are, by nature, smaller than banks. That means they typically invest less in both physical branches and ATMs than banks.
Many people rarely need to visit their financial institution in person anymore. And this disadvantage doesn’t, ultimately, seem too important if you only need to go into a branch a few times a year.
Similarly, cash is being used less and less. So having access to fewer ATMs may not be a significant disadvantage for you. Customers also always have the option of looking for national credit unions that make investing in branches and ATMs a bigger priority.
Slower to embrace new technology
Another potential downside to choosing a credit union is that they often are slower to take advantage of new technology. That’s because most credit unions prefer to focus on offering the best financial products over everything else.
For example, when banks first started rolling out mobile apps, it took some time for credit unions to catch up. If being able to use the latest financial technology is important to you, then you may want to look into banks instead of credit unions.
However, not all credit unions are like this. A new class of online credit unions has emerged in recent years and these tend to make technology more of a priority. Picking one of these could allow you to be part of a credit union without having to sacrifice on the latest tech.
Often offer fewer financial products than banks
Banks tend to offer as many financial products as possible to attract as many different types of customers as possible. But that’s not usually a key priority for credit unions–they tend to prioritize quality over quantity.
This means that, if you join a credit union, you shouldn’t necessarily expect to get access to a ton of unique financial products. It’s likelier that your credit union will provide you with a few financial products that are very high-quality instead.
Some people may not like this–especially if they’re looking to get creative with how they use their money. But if you just want a simple, high-quality (albeit somewhat limited) banking experience, then a credit union will be perfect for you.
Savings offerings aren’t always better
Credit unions pride themselves on offering better yields for savings accounts than banks do, but this doesn’t always happen in practice. Sometimes, a bank will actually be able to provide you with a higher interest rate than your credit union.
The key to beating this is to find a credit union that locks in your rate for a set amount of time instead of changing it monthly. If you can do that, then it becomes much less likely that you ever miss out on an opportunity to earn a higher interest rate by storing your money with a credit union instead of a bank.
You have to pay closer attention to a credit union’s fine print
Another potential disadvantage stems from the fact that credit unions are much less uniform than banks. The terms and conditions of your membership with a credit union could be very different from what you’re used to if you’ve used banks historically. That’s especially true if you want to switch to a small credit union without much of a national footprint.
Which is better: A bank or a credit union?
Banks and credit unions each have their own unique benefits. Picking between these two options comes down to which benefits matter most to you.
For example, if you want to maximize your savings account interest while minimizing your banking fees, then a credit union could be a great choice for you.
On the other hand, you might care most about being able to use the latest banking technology and having access to the most financial products. In that case, a bank might be a better fit for you.
A third option
A neobank is a tech company that provides banking services through a website or mobile app. They tend to be high-tech with lower fees and competitive rates. That means they combine some of the best benefits that both banks and credit unions offer.
You can even choose a neobank that focuses on a cause you care about, such as Aspiration, which focuses on protecting the environment.
Pick a financial institution that believes in sustainability
The sheer number of choices that you have to consider when selecting a new bank can feel overwhelming. But this decision also represents an opportunity for you to pick a financial institution that’s truly representative of your values.
At Aspiration, your everyday purchases and your savings account will never be used to fund the oil or coal industries. We also reforest the planet when you use your card and offer helpful applications to help you track your progress towards becoming carbon neutral.
But don’t just take our word for it. Check out our website today to learn more about what we can offer you.