Headline: Credit Unions v. Banks

Date: 12/14/2020

Body: I saw this article on the site Penny Hoarder, and it is linked below.

Credit Union Vs. Bank: How to Decide Which Makes Sense For You (thepennyhoarder.com)

Given the time of year, it seemed to be a good opportunity to review the differences between these 2 financial intermediaries.    To be sure, both offer savings accounts, checking accounts, money market accounts and several types of loans. Both are insured by the US government through different insurance programs.   But, there are key differences.

What are the differences?

Banks are businesses and are there to earn a profit from the financial transactions they mediate.  Credit unions are organized as not-for-profit organizations and the dividends (usually relatively small) go directly to the members who own the organization

Each type of financial institution has its benefits and drawbacks. Here’s how credit unions and banks stack up across eight essential categories:

1. Credit Unions often offer a better interest rates.
2. Credit Unions usually offer lower fees on the accounts they have.  Many offer free checking which is rare among banks.
3. Credit Unions are more likely to work with members who have borderline credit, to offer them a product they can sustain.
4. Banks often have better rewards programs on the credit cards or other accounts they offer.
5. Banks usually have more physical locations and a better selection of ATM locations (but some credit unions have a relationship with a network of ATMs that allow for a good selection.
6. Customer Service is usually better at a credit union, but, small banks do offer similar service.
7. Credit unions often offer many more opportunities for financial literacy.  Very often, they have seminars, webinars and other educational opportunities to teach their members about financial topics.
8. Banks usually have a better IT infrastructure, and they have a more secure experience online.
9. Banks are very easy to join, and credit unions might require that you have a certain job or employer.

Maybe I can open accounts at BOTH a bank and a credit union?

You could do this.   I thought seriously about doing this and decided against it because of the following:

1.  The Bank I was considering had a very good online banking portal, and friends in the security business attested to how secure it is.
2. The Bank I was considering had an agreement where I could use ANY ATM, and this bank would pay me up to $15 per month to compensate me for these foreign ATM fees.
3. The Bank I was considering offered investment services, mortgage loans and many other services that I might want, all under one roof.  Thus, my financial life could be made “simple.”  (Later, I realized that there were many other better mortgage servicers and the bank stopped doing investments.  Currently, I am thinking about moving.)

I am not sure I qualify for that Credit Union

It is true.   There are requirements to become a member of a credit union.  Typically, you need to either be in a certain profession or belong to some type of community.  (For instance, there is a NASA Credit Union, and I assumed that you had to be a NASA employee to join.  But, per their website, if you are not a NASA employee, if you join a group called The National Space Society first, you can then become a member of the NASA FCU.)  I used to work for a public accounting firm, and they had a relationship with Montgomery County Teachers FCU, where employees of my firm could join the credit union.  So, these membership requirements are usually not too onerous, and there is often a “work-around.”

The Verdict

So, which institution should I trust with my hard-earned money?    It depends.   But, a few “brightline” rules seem to be apparent.   If you want more personal service, education, and occasional hand-holding, a credit union might be right for you.    If however, you just want a bank account with a good IT infrastructure, it might be best to go with a larger Bank.  If you are concerned about the compromises you might be forced to make don’t worry.   There are larger credit unions that have VERY competently managed IT systems, and a good mobile app.    There are also some (not a lot) local community banks where you can obtain some old-fashioned service from people you know, with the strength of a Bank behind you.

REFERENCES

The Pros and Cons of a Credit Union Versus a Bank | Banking Advice | US News

What’s The Difference Between A Bank And A Credit Union? – Forbes Advisor

What’s the Difference Between a Credit Union and a Bank? | Credit Karma

Bank vs Credit Union: What’s the Difference? (thebalance.com)

Editor’s Note: The information in this blog should not be construed as tax advice.   Each individual has attributes that could change the recommendations in a material manner.  For this reason, please enjoy this blog, but before taking action, consult a CPA or tax professional to discuss the details of your situation.