In the years since the infamous Lehman Brothers collapse and the ensuing financial crisis, scrutiny of banks has only grown worse. It’s enough to make some people want to go back to the old days of stuffing cash under their mattress! However, in order to protect your money it is important that you put it into a bank. In a bank your money is insured and has the ability to grow. If left at home your money could get lost, stolen, or damaged if there’s a fire or flood. Plus, let’s not forget about the convenience of online banking, debit cards, and overdraft protection.
The real question is, which banks should you trust? As resentment towards big banks simmers, people are flocking towards their local credit unions for their banking needs. How can you decide which is right for you?
To start, let’s go over the differences between banks and credit unions. A traditional bank is a for-profit public financial institution. A credit union is a non-profit financial cooperative. In order to join a credit union, you need to share a “common bond” with them. Typically this takes the shape of a professional association (i.e. a teacher’s credit union) or a geographic community (meaning you have to live in a certain town or city to join). In a credit union, each member is not simply a customer, but a part-owner that has a vote in the leadership of the union.
Now that you understand the basic differences between a bank and a credit union, let’s talk about some of the highest priorities for most bank customers and see how each type of institution adds up.
Credit Unions vs. Banks: Convenience & Customer Service
Branch Locations & ATMs
Traditional banks, especially the nationwide banks, tend to have many branch locations and ATMs. That means they are automatically more convenient, right? Not necessarily. Did you know that if you bank at one credit union, you can also use other credit union’s branches through CU Service Centers or CO-OP Financial Services Network? All you have to do is check the websites and see if the credit union you’re interested in is listed. Please note, if you are a member of a credit union and you are visiting another branch in either network, you’ll need to know your account number and have your ID, or else they likely won’t be able to serve you.
Another thing to note is how large a presence your bank or credit union of choice has in your city. Think about where you live, work, hang out, and how often you travel. Then look up the locations of each of these financial institutions and compare them to see who truly has a stronger presence in your area. Just because a bank has ATMs across the country doesn’t mean they’ll have any in your neighborhood!
Check out our new courseNeed an extra hand as you embark on your debt payoff journey? Join ReadyForZero Community Builder, Shannon McNay, for a one-on-one six week course that will empower, motivate, and educate you. Next stop: debt freedom! View Course
Availability & Helpfulness of Customer Service
Think about your priorities. Are you looking for a bank you can reach at all hours of the day, any day of the week? If so, traditional banks are the way to go. Or, do you prefer to have less access to customer service, but want to receive personal attention every time? You probably want a credit union. Credit unions consistently rank higher in customer service satisfaction than banks. Since a credit union is essentially being run by its members, it is very important for them to ensure that the members are satisfied.
So what if you’re a mix of the two? You want personal attention but you really need it to be available at all hours and on weekends. You can still choose a traditional bank – but you’ll have to do your homework. Banks may be corporations, but each branch is slightly different. I used to work for a large, national bank in a slower branch where I had the time to give stellar customer service every day. However, my good friend worked at a much higher traffic branch. Although she still gave stellar customer service, there were some things that were out of her control – like wait time, how much time she could spend with each customer, etc. So if you find a bank you like, look for a branch that has slower traffic.
In terms of evaluating customer service on the phone, give them a call! I recently wrote a blog post about trying to lower my credit card interest rates. I called three banks and two credit unions. One of the three traditional banks gave me fantastic service and went over and above to meet my needs! One of the two credit unions also gave me great customer service, but they did not offer the same solution as the traditional bank. So although everyone will tell you that you’re guaranteed to have better customer service at a credit union, don’t be so sure. It all depends on which credit union you choose and whether you prioritize in-person customer service over all-hours availability.
Credit Unions vs. Banks: Products
Traditional banks and credit unions tend to offer the same products, such as: checking and savings accounts, credit cards, auto loans, home loans, home equity lines of credit, CDs, and investment accounts. The main difference you’ll see on these accounts is interest charged or earned, fees charged, and the customer service you will receive on the account. Warning: it has come to light that some banks and credit unions are offering payday loans but covering it up by calling them something else. Payday loans are a dangerous and expensive form of credit that should be avoided at all costs. So if your financial institution is offering you a short-term line of credit that has an application fee or high interest rate, stay away.
Credit Unions vs. Banks: Fees
What They Charge for Deposit Accounts
There are still many banks and credit unions that offer free checking, although it is common thought that this is disappearing. Read the terms with your personal banker when signing up for an account to make sure it is truly free and doesn’t include any hidden charges. Credit unions and banks will require you to make a deposit when you open an account. However, with some credit unions, the required deposit must stay in your account to maintain your membership. Most savings accounts at any financial institution do require a minimum balance and, if they don’t, will at least charge a fee after a certain amount of withdrawals.
What They Charge for Overdrafts
If you don’t have overdraft protection set up with a traditional bank, you will pay large fees for transactions that go through while you’re negative. Credit unions may also charge overdraft fees, but most often at a lower price. Either way, you should never lose money to these fees! No matter what type of financial institution you join, inquire about overdraft protection. It is often free and can come in the form of a credit card, a line of credit, or can be attached to your savings account. You may think this type of situation would never happen to you, but you can never be too sure!
What They Charge for Loans
On average, credit unions charge lower interest rates on loans. Since credit unions are not-for-profit they funnel money earned back to their members, which enables them to charge lower interest rates on loans and yield higher interest rates on savings accounts. However, you still need to compare the interest rates of the credit union and bank you’re interested in because they can vary from institution to institution and based on loan type. For example, many credit unions charge a higher interest rate on mortgages than traditional banks. But, their credit card interest rates are typically much lower and are even capped at 18% for federally chartered credit unions (unlike banks who can go upwards of 30%.) In my personal experience, when I called to lower my credit card interest, the credit unions had lower rates than two of the three traditional banks I called, but they couldn’t compete with the one traditional bank that offered me the lowest interest rate (11%). So, averages aside, the best way to know for sure is to do your research on the specific institutions you’re interested in!
Interest Rates for Savings Accounts
The sad truth is that whether you go through a bank or credit union, you won’t make a ton of interest by putting your money into a savings account. Credit unions usually earn a marginally higher interest rate on savings accounts, but still come in under 1%. To find the best rates offered for savings accounts or loans, check bankrate.com.
Credit Unions vs. Banks: Security
Whether you go for a traditional bank or a credit union, your funds will be covered should anything happen to the institution, up to $250,000. Traditional banks are insured through the FDIC (Federal Deposit Insurance Corporation) while credit unions are insured by the NCUSIF (National Credit Union Share Insurance Fund). Again, much safer than stuffing your money under your mattress!
So now that you have all this information, what’s the answer? Shop around! Even with these basic differences, that doesn’t mean you can’t find one credit union that is better than the other or one traditional bank that is better than the other. So start with a few banks you may want to join and a few credit unions that you’re eligible for. Then write down your priorities and see who checks off most of your needs. That is the only way to ensure that you will be happy with your financial institution at the end of the day.