Many consumers are getting fed up with doing business with banks and are shopping around for more affordable alternatives to these institutions’ charges that can quickly add up. Many dissatisfied bank customers are happily making the switch to credit unions, but before you close your account at your neighborhood bank, it’s important to know the similarities and differences between the two.
For starters, unlike a bank, you would need to become a member of a credit union. Members are the heart and soul of these organizations, and most will go out of their way to keep those members happy. As a not-for-profit, the average credit union will usually have a smaller staff of associates who take the time to work with their members and get to know them on a more personal level. Schools, organizations, and companies often designate a certain credit union that their employees or members can work with; this incentive helps to add to the “community” feeling that many credit unions encourage.
Banks, meanwhile, are part of a larger financial machine and are basically in business for themselves; the money they earn from their depositors goes toward maintaining the bank. Although they are concerned with retaining existing customers and bringing in new business, most of them have customers to spare and may not have the staff to give the personal touch that many credit unions work hard to create. However, the sheer size of most banks gives them an advantage—most of the larger banks have branches across the country, making it easier for customers to still do business with them no matter where they may live. They still tend to offer a wider range of services than most credit unions.
Another big difference is the services each provide, particularly for those consumers concerned about credit cards. Almost all banks offer credit cards as a standard service; not all credit unions automatically issue credit cards, and those that do still require an application. Credit unions look for a good credit history from the applicant, the same as a bank. One of the biggest reasons customers leave a bank and move to a credit union is because credit unions tend to offer lower fees and interest rates on those credit cards. About 60% of credit unions have their fees federally regulated, with the remainder controlled by the state where they’re based. As a comparison, in 2009 the median interest rate for banks was between 12.2 and 17.9 percent, while credit union’s average rate was between 9.9 and 13.8 percent.
Credit unions also tend to offer better rates on loans and mortgages, lower credit card rates, and free checking accounts. Most banks also offer the free checking account option, but charge notoriously high fees for overdrafts and ATM fees for users who do not have an account with them. Many credit unions are expanding their services to include more loans for students and small business owners.
It should also be said that banks have a deep-seated hatred for credit unions that goes back to the 1930’s, when President Franklin D. Roosevelt signed the Federal Credit Union Act and established stricter regulations for banks, including the Federal Deposit Insurance Corporation (FDIC). Credit unions must follow their own set of regulations and are insured by the National Credit Union Administration, but by most accounts their regulations are much more customer-focused.