In answering the question “What is a credit union?”, most people have the same answer “It’s just like a bank, but…”. Well, in the case of products and services, that’s usually a pretty good descriptor. Saying credit unions are just like banks is an easy way to let whomever is asking the question, know that credit unions have checking accounts, loans, debit cards, savings accounts, credit cards, and other traditional banking products.
But how does that answer end? “It’s just like a bank, but…”
Often times those of us that know banks and credit unions are different aren’t exactly sure how. Or maybe we just aren’t sure how to explain it. Well, there is very major difference between these types of financial institutions, and here it is, in a nutshell:
Banks are for-profit businesses that answer to investors. Credit unions are not-for-profit and member-owned.
Basically, think of the money in your bank accounts as money you are lending to the bank that they will invest to make a profit. And much like any other business, the bank will make these investments based on which will turn the greater profit. And, at the end of the day, all of the decisions made for the bank as a company, that will in turn affect bank policies and customer fees, will be made based on investor happiness and what can garner the most revenue for the bank.
Credit unions, on the hand, operate under a not-for-profit business model. Not-for-profit is not the same as nonprofit, which is a term you may be familiar with in regards to charity organizations. Nonprofit means that an organization is dependent on donations to survive. Not-for-profit simply means that any profits that a credit union makes are returned to its members in the form of lower loan rates and higher savings rates. And, if it so happens that there is any revenue left after making all of these adjustments, credit union members can receive dividends.
So what kind of financial institution is best for you? Of course each individual’s financial and personal needs are different. But here are a few items you should consider when choosing your financial institution:
Turning a profit has its benefits. The big banks have tons of locations, nice and new branches, and many conveniences and technical advances that many smaller financial institutions cannot afford to offer; think robust mobile apps, remote check deposit, etc.
You’re the boss. A savings account is not just a savings account at a credit union. CUs call these “share accounts” for a reason; because it is your share in the ownership of the credit union. And while banks are answering to investors, credit unions answer to their members. CU members even vote for the board of directors for their credit union and voice their opinions at annual meetings.
Investments aren’t the only way to turn a profit. A couple of years ago, consumer frustration with big bank nickel and diming practices culminated in Bank Transfer Day. November 5, 2011 was deemed Bank Transfer Day in a movement of consumers that were fed up with being charged fee after fee by big banks. Not only were these banks raising existing fees, but they were also adding new fees, like Bank of America’s now infamous proposal to charge its customers $5 monthly just for having a debit card.
If turning a profit has its benefits, then no profits must have some disadvantages. Most credit unions are smaller and more local in nature. And sometimes that means that the conveniences that larger banks can offer, like the technological advances and multitude of branches we mentioned earlier, are not as easy to come by.
CO-OP ATMs. So you don’t necessarily need a credit union branch, you just need some quick cash from the ATM. BUT, you don’t want to pay a huge fee, right? Most credit unions participate in the CO-OP ATM Network of almost 85,000 ATMs across the country that members can use just as they would their own credit union’s ATMs. Fast cash with no fees. And many of them even take deposits.
This is last, but certainly not least. Another advantage of the smaller, community nature of credit unions is the impeccable and friendly service. The hustle and bustle of long lines just don’t lend themselves to remembering customer names or customer relationships with banks. But, credit unions provide something much different. So, don’t be surprised if you’re are greeted with “Good morning Mr. Smith” when you walk into your credit union, as opposed to someone asking for your account number or debit card.
We are obviously biased, but the advantages to joining a credit union seem to far outnumber the disadvantages. And contrary to semi-popular belief, you don’t have to work for an employer with credit union ties to join one. Many credit unions do have restrictions on who can be a member, but many of those restrictions are as simple as living in certain counties or cities; which isn’t much of a restriction at all.