Have you ever wondered what the difference is between a credit union and a bank? Or whether one might be a better choice over the other? While both financial institutions can offer you many solutions when it comes to saving money, they generally operate a bit differently. Let's explain the differences when thinking about your money management.
Unlike banks that are profit-driven, credit unions are not-for-profit banking and lending institutions that are member-owned. A credit union essentially works as a money cooperative. As with a traditional bank, your money is pooled with the money of other credit union members and is loaned out at the credit union's discretion.
Because of their not-for-profit status, a credit union typically offers lower interest rates on loans and higher interest rates on saving accounts and CDs. And because they only deal locally, credit unions can also be a little more flexible with who they choose to loan their money to than a bank. Also, if you prefer to keep your money local, a credit union might be the right choice for you.
While anyone with an unblemished financial record can walk in off the street and open a checking or savings account at the bank, credit unions generally have certain restrictions as to who can join. Credit unions are community focused, and their services are usually only offered to people who live, work, and do business within a certain region. Some credit unions exist to serve employees of a certain employer, or members of a certain association, or even a religious or fraternal organization.
Your money is likely to be safe at a credit union as it is at a bank, because federal credit unions are insured by the National Credit Union Share Insurance Fund. Credit unions generally have less aggressive fee structures than banks as well, so you might pay less to access, manage, and transfer your own money.
Credit unions can be appealing because of their community focused approach to banking, and have become a popular alternative to banks in today's post-big bank bailout era. If you prefer more of a no frills approach to banking, credit unions may be a good choice. However, it may be likely that larger banks will have more ATMs, locations, and general visibility in your region than your local credit union.
If you have questions about banking, finances, or living on a budget, be sure to visit the Protective Learning Center for more information.