For many consumers the global economic disaster caused by the American housing market and the financial services industry still linger in their minds when they think about money. The financial crisis was a wake-up call and a living case study as to how fragile the financial system can be. As a result many consumers no doubt realized the importance of scrutinizing the institutions that we all trust to be good stewards of our finances. It’s hard enough to make a budget and stick to it, but now you have to worry about where you’re saving the money you’ve worked so hard to save!
Consumers realized that they must be informed as they make decisions about what kind of financial institutions they will manage their money with. Before the financial crisis some might have considered shopping for the right bank to be an arbitrary task. Today, however, comparison shopping for a financial institution is a necessity. Learning more about the strengths, weaknesses and differences between banks and credit unions can ensure that a consumer will make bank with an institution that will add value to their financial life.
What To Know About Banking With A Credit Union
According to Forbes.com credit unions, like banks, are financial institutions. Credit unions are structured differently than commercial banks in that they are non-profit organizations. Like banks, credit unions offer the individuals that patronize them services and products like financial counseling, savings accounts, checking accounts, car loans, mortgages, online banking and ATMs. It is important to note, as website Nerd Wallet points out, that credit unions differ a little in terms of “how” they administer those financial services and products to consumers.
The Pros Of Using A Credit Union
Credit Unions Are Non Profits
Customers who choose credit unions might agree that these financial institutions’ non-profit status makes a big difference in their approach to providing financial services. Nerd Wallet points out that the difference in how banks and credit unions are structured impact how they are able to serve their customers.
Because credit unions are non-profits their first concern is not extracting as much economic value as they possibly can from a customer. Credit unions exist to meet the needs their specific membership communities have. That said, they are known for offering excellent terms for loans and high interest rates for savings accounts. These are important factors for any consumer who is looking to do business with a financial institution to consider. Another important factor regarding the structure of credit unions is the fact that the credit unions are owned by their members.
Credit Unions Fared Better Than Banks During The Financial Crisis
US News & World Reports writes that the Credit Union National Association found that in the midst of the financial crisis that started in 2008, banks failed at a rate that was four times the failure rate of credit unions. According to US News the number of failed credit unions during that time was 124 while the number of failed banks during that same time period was 465.
Cons of Banking With Credit Unions
Credit Unions Have Membership Requirements
Most commercial banks are open to doing to business with members of the general public. Credit unions can be a little more discriminating in that they have some requirements for exactly who is able to become a customer. This is because credit unions are often set up to meet the needs of specific groups of individuals. These individuals might include people who attend the same university, live in the same place, work for the same employer (i.e. the state government), practice the same religion or who share membership in a particular non-profit organization.
Credit Unions Can Have Fewer Locations
If you were to walk around the downtown area of the city or town you live in, you would no doubt see several ATMs that belong to large commercial banks. This can’t always be said for credit unions whose locations can be limited. This may be due to credit unions being structured as non-profit organizations meaning that they may not have the capital to have the same amount of ATMs and branches as a national commercial bank.
Credit Unions May Not Have Brokerage Options
While this is changing, often, credit unions don’t have brokerage options for investing in stocks and other securities. This is changing, but still isn’t as common as it is with banks. Many credit unions are able to offer this service through partnerships with brokerage companies.
What To Know About Banking With A Bank
The Pros Of Using A Commercial Bank
Banks May Have More Online Banking Options
One of the many benefits of technology is that it tends to make the process of managing money and banking a lot easier. Instead of leaving one’s home to wait in a line for a bank teller to call you to their station, customers can perform minor transactions from the comfort of their smartphone. According to Nerd Wallet larger banks are more likely to have state of the art digital banking options like remote check deposit and banking apps.
They Can Make Banking While Abroad More Convenient
For customers traveling to another country figuring out money management takes some thought. Customers must consider whether and how they will be able to access their money during their trip. When a customer is abroad they may find that it is somewhat comforting and a little less confusing to see ATMs from a financial institution that they are familiar with. Nerd Wallet points out that larger commercial banks could have more ATMs than credit unions abroad making it a little easier for consumers to manage their money overseas.
Many Banks Offer Brokerage Services
It has become a lot more common for banks to service all of their clients’ needs which often include the need to invest in stocks and securities. While there are still a fair number of banks that don’t have this option, it is far more common to find a bank that offers this option than a credit union.
The Cons of Using A Commercial Bank
Banks Did Not Hold Up Well During The Financial Crisis
As US News & World Reports wrote, banks failed at four times the rate that credit unions did during the most recent financial crisis. Indeed some large commercial banks like Lehman Brothers did their part to contribute to the economic instability the financial crisis caused. That instability caused many consumers to reconsider their relationship to their banks by withdrawing their funds.
Fees, Fees and More Fees
One of the downsides of banking with a commercial banks are fees. There may be fees for using ATMs and fees for maintaining accounts opened with the financial institution. This focus on fees may be attributable to the fact that banks are for-profit institutions. As Forbes points out, banks are beholden to their investors and must juggle that obligation with the welfare of their customers. Forbes concludes that having to be accountable to both investors and customers can result in higher fees.
Banks vs. Credit Unions
The primary difference between credit unions and banks lie in who owns them and the primary objectives of their business models. Because credit unions are owned by their customers they can prioritize the needs of customers in a way that banks arguably aren’t able to. Banks are businesses and as a result tend to prioritize policies and products that will bring in the most money. These policies and products may not always align with the interests of customers who depend on a bank’s financial services.
Banks are open to members of the general public and typically have no requirements as to who can become a customer (depending on the service offered, of course). Credit unions on the other hand have requirements on which customers can use their services. As Forbes.com points out, while credit unions do have requirements for who can bank with them, there are so many different kinds of credit unions in existence that a customer should be able to easily find one whose required demographic they fall into. Banks tend to make international banking somewhat easier for travelers than credit unions. The offerings that credit unions have in the arena of online and mobile banking may be limited while commercial banks can have options like remote check deposit and smartphone apps.