When looking for a place to keep your money safe, you want to be sure you’re choosing the best option. It’s easy for people to assume all financial institutions are alike. But despite some notable similarities, the distinctions between banks and credit unions are significant. Read on to find out how banks and credit unions differ, which will help you determine the best financial institution for you.
What Are the Primary Differences Between Banks and Credit Unions?
To truly understand the distinctiveness between credit unions and banks, it is essential to understand the fundamental factor that sets them apart—their operational structure. Banks are for-profit organizations owned by shareholders, while credit unions are not-for-profit institutions owned by their members. These distinctions impact the range of products and services offered by each financial institution, as well as their approach to customer/member relationships.
While national banks may prioritize their investors regarding profit distribution, credit unions take a different approach by directly benefiting their members. They accomplish this through various means, such as offering competitive interest rates, reducing fees, and providing financial incentives. At the heart of a credit union’s mission lies the unwavering commitment to prioritizing its members’ needs and economic well-being.
How Are Accounts From Banks and Credit Unions Different?
When you decide to open your first account at a financial institution, it’s common to encounter a minimum deposit requirement. Credit unions strive to make it easy for you by keeping this minimum low. For instance, at Vermont Federal Credit Union, you can become a member with just $5.
Maintaining your account with a credit union comes with little to no minimum balance requirements. You only need as low as $5 in your account in many cases. Moreover, credit unions typically have minimal or no monthly service charges or membership fees. This is one of the many ways that credit unions offer their members greater flexibility and opportunities for savings compared to large banks.
How Are Bank and Credit Union Loans Different?
Regarding borrowing, credit unions are known for offering loans with low interest rates compared to large national banks. Whether you need a personal, home, auto, or business loan, credit unions consistently provide great rates across all types of loans. You can verify this by checking out the National Credit Union Administration’s breakdown, which compares the national average rates for 23 different loan and deposit products at credit unions and banks.
In addition to offering excellent interest rates, credit unions often provide the added advantage of charging low fees for closing costs, origination fees, and other expenses. This member-focused lending helps credit unions stand out as excellent loan sources.
Credit unions work closely with their members and ensure that loans are accessible to a broader range of individuals, even those with lower credit scores. Credit unions do their best to work with borrowers facing challenges to help them achieve their financial goals. Additionally, credit unions often provide valuable financial resources and guidance to members, ensuring they make the most informed decisions regarding their loans.
How Are Bank and Credit Union Products Different?
Despite the common misconception that larger financial institutions offer a more comprehensive range of deposit and lending products, the truth is that both national banks and local credit unions typically provide most, if not all, of the same core products. These include personal and business checking and savings accounts, loan options, investment opportunities, and credit cards.
When it comes to loans, credit unions don’t have to pay investors, allowing them to enhance existing products and expand their offerings to serve their members better. When a credit union has a surplus of funds, they are typically reinvested back into the institution, allowing them to offer more competitive rates and better terms on their loan products.
Credit unions can tailor their products to meet specific needs by focusing on their members’ best interests. For example, they may offer specialized loan programs for first-time homebuyers or small businesses looking to expand. Additionally, credit unions have the flexibility to create unique savings and investment options that align with their members’ financial goals and risk tolerance.
Locally Rooted in Your Community
Being smaller and member-focused, credit unions can provide a more localized customer service experience. Putting their members’ needs first is a fundamental value at the core of these financial institutions.
In addition, credit unions take great pride in their local roots and actively contribute to the communities they serve. They are deeply committed to making a positive impact by supporting local charitable organizations, participating in community projects, and engaging in local events.
Once you see how banks and credit unions differ, choosing the right financial institution for you should be easy! Ready to join a local credit union? All you need to do is find a credit union where you meet membership qualifications. Qualifications are often based on location, employment, organizations you belong to, whether anyone in your family is a member, and more. So, look into the options in your community, and apply today! If you live, work, worship, volunteer, or attend school in Vermont, you are eligible to become a Vermont Federal Credit Union member!
