What’s the difference between banks & credit unions?

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I have to admit, I had never given a credit union much thought until recently. With all the bad press around “big banks” recently, I’d like to investigate some alternatives, but I really don’t know much about either.┬áCan you help me with the differences between banks and credit unions?

  1. Bank on it

    With all the hullabaloo recently with “too big to fail” and people occupying various locales, many folks have started taking a look at who they let hang on to and invest their money.

    Traditionally, unless you are like my grandmother and hide money in various odd locations throughout your house, you probably keep your money in a bank. Recently, however, credit unions have been surging in popularity. So what exactly is the difference between a bank and a credit union? Well, both hold on to your money for you and offer you easy access to it, but they do differ in some key ways — let’s take a look.

    Credit where credit is due

    I’m not going to argue one way or another for which is “better,” that’s entirely up to you and your banking needs. What I will do is compare and contrast these two types of financial institution, so you can make your own decision. With that said, here we go.

    Banks

    • Can be nationwide, even worldwide
    • Operate on a for-profit business model
    • Typically owned by private investors
    • Governed by a board of directors chosen by stockholders
    • Offer business as well as consumer accounts

    Credit unions

    • Tend to be regional
    • Operate as a non-profit financial cooperative
    • Owned by their members, i.e. their account holders
    • Governed by a board of directors chosen by the members
    • Strongly consumer oriented

    Because credit unions don’t need to turn a profit, any interest they earn by investing your deposits is returned to you in the form of a member dividend. They also tend to have lower fees and higher interest rates on savings and checking accounts.

    Banks have their advantages, too. If you frequently travel or work outside of your home region and require physical access to your financial institution, a nationwide bank might be a better option. Yes, you can withdraw money anywhere, from any ATM with a credit union, but if you need to make a deposit when the nearest one is 500 miles away, this may present a difficulty.

    The payoff

    Obviously, your particular needs will determine which type of financial institution suits your needs the best. Don’t just automatically assume that one is correct for you based on what I’ve written here — go and do your research. Find out what banks and credit unions are popular in your area, and talk to people about what they like and don’t like about them. When it comes to money, the best decision is an informed decision.

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