Banks vs. Credit Unions

Are you looking to deposit your savings to earn interest and see your savings grow faster? Do you need a loan to pay off debt or finance a major obligation, such as college tuition, a vacation, or a home improvement project? Seeking conveniences and services like a checking account or direct deposit? Whatever you want from a local financial institution, your choices will likely include banks and credit unions.


The key to finding the bank or credit union that will best meet your needs is information. Find out about the differences between banks and credit unions, identify your financial needs, and then choose the one that's best for you. Both can probably serve your needs, but they're different and you should know how those differences might affect you. What follows is a general description of credit unions and banks. Make it your basis for further investigation.

First and foremost, you need to understand that credit unions are not open to the public at large. Instead, they serve certain groups of members, such as those who work for a particular business or live in the same neighborhood. As a result of this specialization, credit unions are able to focus on the special needs of that particular group.

When you open an account with a credit union, your deposit is considered as a share of ownership. Therefore, each member of the credit union is a business owner. Credit unions are not-for-profit organizations. So after expenses are paid and reserves are set aside, any surplus earnings may be returned to members in the form of higher dividends, lower loan rates, and free or lower-cost services.

All federally chartered, and many state-chartered, credit unions are insured by the National Credit Union Share Insurance Fund, an organization which is managed by an agency of the federal government.

Unlike credit unions, banks can serve anyone in the general public; you needn't be part of any particular group. When you open an account with a bank you're a customer, not an owner. Marketplace competition and the overall economic environment affect the interest rates that banks pay on deposits and charge for loans or other financial services (such as checking accounts).

Banks are owned by investors and their business is making money for their owners. Bank customers have no voice in how the bank is operated. The federal government insures your deposit accounts through an insurance fund called the Federal Deposit Insurance Corporation.

If you're eligible for membership in a credit union, see what it has to offer. Compare it with a number of banks in your area. Again, credit unions and banks can provide a range of important financial services. In any case, the choice is yours. Learn as much as you can and make the best choice for your particular needs.