Are credit unions better than banks? If you’re looking to save money, credit unions do offer some advantages over big commercial banks. That’s why friendly local financial cooperatives like Radiant Credit Union remain community favorites, decade after decade.
Here we’ll explore credit unions vs. banks as savings destinations. We’ll look at how credit unions are different and how they stack up when it comes to spending less on managing your money and saving more of it.
Credit Union vs. Bank: Which Will Save You More?
If you’re tired of paying fees for everything you need to do at your bank, you might find your local credit union refreshingly different.
Credit unions started in the last century when local people banded together to offer each other access to affordable loans and credit that they were unable to get at large commercial banks. Today, these not-for-profit cooperatives continue to do much the same, offering members a wide range of financial services without the profit-seeking fees that traditional banks may charge.
How does that look on your day-to-day banking and monthly statement? The following table summarizes some of the critical differences between how banks and credit unions handle your money.
| Feature | Credit Unions | Banks |
|---|---|---|
| Not-for-Profit Status | Member-owned, not-for-profit | Investor-owned, for-profit |
| Eligibility | Membership required, based on eligibility criteria | Open to anyone |
| Rates | Typically lower than banks on loans and higher on savings | Standard market rates |
| Fees | Lower or no fees | Higher fees on most products |
| Products, Services, and Digital Banking | Similar to banks, but often with fewer fees | Wide range of products and services. |
| Footprint | Local, but often with regional or national alliances | Regional or Nationwide |
| Deposit Insurance | NCUA insured up to $250,000 | FDIC insured up to $250,000 |
| Service | More personal | Less personal |
| Community Involvement | Strong community focus and involvement | Varies, often less localized |
What is a Credit Union vs. a Bank?
Now let’s take a closer look at each of these differences in turn, and why they might matter for you as a credit union member or bank customer.
Not-for-Profit Status
As mentioned, credit unions are not-for-profit institutions operated for the benefit of members. Their charters require that any earned profits that are not used to cover operating costs are to be redistributed for the collective benefit of members.
By contrast, commercial banks are for-profit and are owned by large groups of investors. The company is run for the benefit of these investors, rather than customers, and profits are paid out to investors in the form of dividends. Because of this, commercial banks seek to maximize profit.
Eligibility
Anyone may open an account at a bank provided they meet the minimum deposit required and can prove their identity and a place of residence.
As financial co-operatives, credit unions generally have restrictions on who may belong. Originally this was to restrict the benefits of the union to those it was meant to serve. These days, credit unions are bigger and membership is much broader too. Normally, you simply need to live, work, study, or worship within the credit union’s service area.
Rates
Banks looking to maximize returns on every transaction tend to charge market-or-above interest rates on loans and pay interest rates equal to or lower than current market rates. The differences between what banks charge and pay in interest are critical to their profitability.
Credit unions are not required to hit profit targets like banks. This means they can charge lower rates on borrowings and higher rates on savings. Without lower operating costs than most banks, credit unions are also often able to return more of what they own to investors.
Fees
Similarly, while banks are under pressure to maximize profits on every transaction, credit unions can often charge at cost for managing your money. That means that fees on services at credit unions are typically lower than those charged for the equivalent at banks.
Products, Services, and Digital Banking
What about the range of products and services and the ability to offer these services remotely via online or mobile banking?
Big commercial banks are indeed able to bring bigger budgets and more corporate muscle to rolling out products and services to customers, but they often back these up with even bigger marketing budgets to publicize their services.
Credit unions have less money (and less incentive) to spend big on advertising their services. And, while many remain locally focused neighborhood organizations, a close look at the products and services offered by established cooperatives like Radiant Credit Union are very similar to those offered by banks.
Footprint
The commercial banking sector is dominated today by just a few nationwide banking names, while larger regional banks provide a more specialized approach, often to businesses. This nationwide focus means banks can offer the same services from coast to coast, which delivers convenience to customers at a price.
Credit unions focus on providing services to a specific population or region. While this used to mean that credit union members sometimes lacked access to branches and ATMs when traveling, today regional and nationwide alliances of credit unions mean members can get cash at thousands of ATMs and even access services at partner credit unions.
Deposit Insurance
It often surprises people to learn that deposit accounts at a credit union are insured by the federal government in the same way as those at banks. In fact, the National Credit Union Administration (NCUA), works similarly to the Federal Deposit Insurance Corporation (FDIC) to insure money held at credit unions.
Money in your federal credit union account is insured against loss up to $250,000. That means checking and savings accounts, as well as certificates or money market accounts, are as safe as that in any traditional bank account.
Service
On the other hand, banks and credit unions differ greatly in the service levels they can offer to their customers and members. Commercial banks are generally too big to recognize repeat customers or recall their specific needs. In most cases, you’ll start from scratch every time you go through the door of a big-name bank.
Credit unions understand that they thrive only when their members succeed. As smaller, locally focused organizations they are better placed and more incentivized to get to know their customers, offer more personalized service, spend time understanding their particular needs and challenges, and tailor services to their needs.
Community Involvement
Banks and credit unions also differ greatly in their commitment to the communities they serve. While commercial banks generally only have a tenuous connection to the neighborhoods where their branches are located, as organizations founded to serve their local communities, local connection and involvement are in the DNA of most credit unions.
Radiant Credit Union is no different. In addition to our ongoing commitment to improving personal finance education and literacy for our members, we support local charities and schools chosen every month by our members.
Credit Unions vs. Banks: Which is Best for You?
What's the difference between a credit union and a bank, and what does it matter to you? To help you decide, let’s consider the pros and cons of both credit unions and banks.
With a wide standardized range of products and services and easy access to branches wherever you are, it can be hard to argue against the power of big commercial banks, especially if you don’t plan to borrow money, do not have significant savings, or do not require specific bank services such as cashiers checks or overdraft protection.
In cases like this, the lower service levels offered by big banks may be acceptable to you, but do be sure to review your statements regularly to keep track of exactly how much you are paying for monthly service fees, transaction fees, and of course interest on money borrowed.
On the other hand, if you are just starting out and need all the help you get, or you’re a busy family looking to stretch every dollar, the small savings on no-fee transactions, lower charges on credit cards and loans, and better returns on certificates and savings can add up.
While some credit unions may lack the reach of big national banks or the sophistication of their online services, it’s hard to put a value on better, more personal advice and more carefully tailored products when it comes to saving for college or retirement or building wealth by borrowing wisely to invest in a home, vehicle, or business.
Credit Union vs. Bank: FAQs
Let’s answer some of the frequently asked questions you have about the advantages of credit unions vs. banks.
Who Can Join a Credit Union?
Credit unions have some limits on who can become a member. These days that usually means simply that you live and work in a particular area or work in a particular industry or branch of government.
In the case of Radiant, membership is open to anyone who lives, works, worships, or attends school in Alachua, Bradford, Citrus, Clay, Columbia, Dixie, Gilchrist, Hamilton, Lafayette, Lake, Levy, Marion, Putnam, St. Johns, Suwannee, or Union counties in northern Florida, as well as their immediate family members.
How Long Does It Take To Get a Loan From A Credit Union?
Credit unions are smaller than banks, and that means loan officers are generally on-site in branches or more easily accessible to members. That makes it more likely you’ll meet directly with the person who will approve your loan.
This, and the fact that many members already have a relationship with their members before it comes time to apply for a loan, means that personal and auto loans can often be approved very quickly, while more complex mortgage and line of credit applications can be faster too.
Why Doesn’t Everybody Use Credit Unions?
Why wouldn’t everyone choose a credit union for their banking? It’s less likely that people new to an area or a temporary resident will join a local credit union – although it’s always a good time to join. People may also be concerned that they might not be able to access banking or ATM services outside their immediate area.
In many cases, however, local credit unions can offer access to cash and other services through partner organizations. Most of the time, people may not have joined a local credit union because they are simply unaware of how much money they could save.
Credit Union vs. Bank? The Choice is Radiant
When you join a credit union, you start a personal and financial relationship that can last for decades. Cooperatives like Radiant Credit Union have the time and focus to get to know you and your financial needs.
For Radiant, that’s time well spent. Making sure you’re using the right mix of financial services for your everyday needs, ensuring you are saving as much as possible, and guiding you toward the right lending products to finance your dreams are all part of a day’s work for us.
Let us help you make a great start on your financial future and follow it up with smart, consistent service matched to your specific needs. Click below to learn more about the benefits of becoming a member of Radiant Credit Union.