Credit unions are generally more consumer-friendly than banks, explains a Money Magazine article posted on CNN Money. One of the ways credit unions typically extend their friendliness is with lower rates on credit cards, loans, and mortgages. If lower interest rates are your main concern, a credit union may be your top choice for a credit card, although banks have their own list of benefits.
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Credit unions can keep their interest rates lower because of their business structure. They are not-for-profit organizations that can translate their profits into lower interest rates for their customers, according to the U.S. Small Business Administration (SBA).
Banks, on the other hand, are for-profit organizations that translate their profits into cash in their figurative profits. Their bottom line is making money, a bottom line that often results in higher interest rates and other strategies that bring profits into the corporation.
Other Ways Banks and Credit Unions Differ
In addition to their for-profit and not-for-profit structure, banks and credit unions differ in several ways, the SBA says. Credit unions are set up so that each member of the union owns his or her own share of the company. It’s up to the members to elect and approve the Board of Directors, which serves on a volunteer basis. Credit unions’ customer base is limited to those who are part of the union.
In some cases, those customers may be limited to a particular occupation or other unique trait that all the members share. In other cases, credit union membership may be open to a wide variety of people who simply have the desire to join.
Banks can serve any customer that walks in, but the customers do not automatically own a part of the company. The shares are owned instead by stockholders and the company is run by paid officials along with the shareholders, according to the SBA. Profits go to the shareholders, not the members.
The two financial institutions also have their similarities. Both are federally insured. Banks are insured by the FDIC while credit unions are insured by a private insurer or the National Credit Union Administration.
Another similarity is the range of services they can offer. While not every bank or credit union may offer every single financial product or service on the market, standard products and services can be available. These include loans, savings accounts, checking accounts, mortgage services and, of course, credit cards.
Other Advantages Credit Unions Have Over Banks
In addition to lower credit card interest rates and a more user-friendly philosophy, credit unions have other advantages over banks. Fees, or lack thereof, may be one of those advantages.
The SBA notes the average bank has a laundry list of more than 50 fees it can impose on customers. These can include fees to set-up your accounts, monthly maintenance fees, fees for overdrafts or overdraft protection, and fees for retailers who accept your bank debit card as a mode of payment. Fees are part of a for-profit bank’s lifeblood and one of the major ways banks make their money.
Credit unions are not interested in generating revenue from fees since they operate on a not-for-profit basis. This means they may typically have far fewer fees that then average bank. When fees are imposed, they may be less expensive than those found at the banks may.
Some Advantages of Banks over Credit Unions
Despite the wide array of fees and higher interest rates, banks may have a few advantages over credit unions when it comes to serving your financial needs. A wider scope of services may be available from banks than at credit unions, SBA points out.
You may also benefit from having a number of different bank locations across the nation if you need to complete a specific transaction regarding your accounts. This can be a major advantage if you travel a lot and need access to your financial institutions from various areas around the country.
Credit unions are typically much smaller institutions that offer limited locations in a specific region.
Several of the advantages and disadvantages, however, may not come into play when it comes to obtaining a credit card from either institution. Your best bet may be to first look for a credit card that suits your habits and needs and then check for its availability from a variety of banks or credit unions.
Whether you want a credit card from a bank or a credit union, you can research credit cards on our FREE credit card finder!
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