Credit Union vs Banks: What Are the Differences?
Are you starting to think more seriously about long-term wealth-building?
Are you opening your first financial account?
Do you simply want to try another financial option for your checking and savings accounts?
These are the type of questions that pop up when you’re deciding between opening an account at a bank vs. a credit union.
Fees, convenience, loan options, ATM locations, and more logistics also come into play.
So, let’s start from the very beginning.
Here’s a closer look at the similarities and differences between a credit union vs. banks nationally, regionally, and locally.
What is a Bank?
By definition, a bank is simply a financial institution where people can deposit their money and withdraw it safely.
Banks eventually evolved into lenders, creating loan products for homeowners to entrepreneurs. You can also open credit cards through banks and set up checking accounts for college students.
Do you have to open a bank account?
Bank accounts aren’t mandatory, in general. There are more financial alternatives for unbanked individuals than ever. However, having a bank (or credit union) account is extremely beneficial.
For starters, if you have a job, you’ll need a bank or credit union account if you want your paychecks directly deposited. Otherwise, you would have to pay extra fees to have your check cashed at a check-cashing business; these services often come with high fees.
You’ll need a bank or credit union account to use certain fintech platforms like Paypal.
Banks also provide loans to eligible account holders. If you’re thinking about starting a business, you would need an account first.
As well, if you want to try different ways to build wealth, you’ll need a dependable bank by your side. For example, infinite banking lets account holders use whole life insurance to finance their own personal banks.
Types of Banks
Generally, when people think of banks, the top national branches come to mind.
Major banks include:
- Wells Fargo
- Chase Bank
- Bank of America
- Citi Bank
- U.S. Bank
The above banks are also known as “The Big Banks” or the “big five.” These banks work with other financial institutions to provide some of the largest loan amounts ever seen. Account holders span the income spectrum, from 30K a year to multi-millionaires.
What is a Regional Bank?
You also have regional banks that are only found within certain regions. Banks are categorized as “regional” if they’re found in at least five states but no more than 20.
Regional banks offer the same type of financial services as major national banks. This includes deposits, withdrawals, loans, retirement planning, and so forth.
You may enjoy lower fees with a regional bank than a national bank, depending on the account type. Regional banks do have more ATM locations than community banks and more investment options, as well. Many customers prefer the “local” feel of their bank’s customer service versus the big banks.
If you want to join a more “values-driven” bank, you would like a regional bank. Since they’re more local, they often partner with more local charities and nonprofits.
However, if you travel a lot for work, you’ll need a bank with multiple national branch locations. That’s one advantage of choosing a national bank over a regional one.
Having more ATMs at your disposal is extremely convenient. You also have more available in-person support.
Typically, you’re charged a fee when you use an ATM that doesn’t belong to your bank. However, some regional banks may have lower fees (or fee waivers) for that.
What is a Community Bank?
If you truly want to “shop local,” look into community banks in your area.
Community banks are commercial banks just like their regional and national counterparts. Expect, that these banks are completely locally-owned and operated.
Since community banks are the smallest, they don’t offer a wide range of products like national banks. However, you can absolutely open various accounts, apply for loans, get a mortgage, and save for retirement. You can also open a line of credit like other banks.
There aren’t as many investment opportunities, but many community banks offer wealth management services.
Similar to regional banks, community banks tend to be more values-driven. You’ll see them reinvest in the community more often than other financial institutions. As such, customers enjoy warm, personalized service from their community bank.
Look into joining a community bank if you’re a small business owner. Since community banks are so involved in their communities, they’re always looking for ways to grow the small business community. Thus, you may find more loan options for your venture.
Community banks are also FDIC-insured, just like national and regional banks.
Joining a Credit Union vs. Banks In Your Area
Your next option is to join a credit union. Many customers prefer the smaller feel of a credit union to dealing with a national bank.
Similar to community banks, credit unions offer the same basic financial services as regional and national banks. If you just want a simple checking or savings account, you could simply join your neighborhood credit union over a big bank.
The first difference you’ll notice is that credit unions are nonprofit institutions. National, regional, and community banks are all commercial institutions.
The second noticeable difference is that credit unions are member-owned. Thus, the credit union works in the best interest of its members, you! Many customers enjoy the level of control and customer service they receive from their credit union.
Since credit unions are owned by account holders, these institutions tend to have lower account and loan rates.
The third major difference is that credit union members have to apply to join the institution.
For example, a credit union’s membership may be limited to specific local employers and their employees (including family.) Some credit unions may require you to live in a certain zip code. Some institutions allow local labor union members and their families.
Every credit union has different requirements. Start with the credit union closest to your address. If you don’t have membership requirements, the institution may let you join for a fee.
Look At All Your Options
There are many financial institutions available. Clarify your financial goals before choosing a solution. Compare the advantages and disadvantages of a credit union vs. banks nationwide, including local and regional.
You can never have enough information. Bookmark this credit union and banking guide, and follow the blog for more updates!