In the United States, there are three main types of banking institutions—commercial banks, thrifts and credit unions. While commercial banks have always reigned supreme in the banking industry, credit unions are steadily gaining market share.
According to Credit Union Times, membership for credit unions rose 3.1% in 2020, bringing the total to 126.6 million members across the country. Additionally, credit union membership grew seven times faster than population growth.
Credit unions and banks offer similar services but operate through separate business models. If you are on the fence about switching from a bank to a credit union or if you are looking to open your first financial account, this article will examine the main differences between a credit union and a bank, how to choose a credit union and the benefits to a credit union membership.
Credit Union Vs. Bank: What’s The Difference?
Credit unions and banks offer similar services, such as checking accounts and loans, but the biggest difference is how they operate. Banks are for-profit institutions where almost anyone can do business. Credit unions operate under the nonprofit umbrella, where only members can access their products and services.
Here is a closer look at how these two financial institutions differ from each other:
| Credit Unions | Banks |
|---|---|
| Nonprofit institution owned and controlled by members | For-profit institutions that can be privately owned |
| Membership is needed to access products and services | No membership is required |
| Generally offer lower fees and higher savings rates | Higher fees and lower savings rates |
| National Credit Union Administration (NCUA) provides deposit insurance | Federal Deposit Insurance Corporation (FDIC) provides deposit insurance |
| Financial services and products may be limited | Generally offer a variety of financial services and products |
As mentioned previously, banks and credit unions offer similar services. Here are some of the services you’ll find at each of these financial institutions:
- Checking and savings accounts
- Loans (home, auto, small business, student and personal)
- Money market accounts
- Credit cards
- Investment services
The choice of a credit union or bank comes down to personal preference. If you are looking for more personalized services, lower fees, higher savings rates and generally an easier loan process, then a credit union may be more suitable for you. However, if you are looking for various financial services, choosing a commercial bank may be the best option.
Now that we’ve established the main differences between credit unions and banks, let’s discuss the benefits members of credit unions enjoy and some of the factors to consider when choosing a credit union.
Rates And Fees
The business structure generally allows credit unions to return profits to their members through lower loan rates, reduced fees and higher savings rates. However, this may not always be the case.
The National Credit Union Administration (NCUA) publishes quarterly data of the national average for interest rates among active credit unions and banks. According to the NCUA website, the data is pulled from S&P Global Market Intelligence databases.
The current data shows banks have lower interest rates on certificates of deposit, money market accounts and interest checking accounts. However, credit unions have an average lower interest rates mortgages, credit cards, unsecured loans, home equity loans and new and used car loans.
Credit unions will tend to have lower fees and minimums, and on certain services, credit unions may not assess any fees.
Customer Satisfaction
Since many companies in the banking industry offer similar products and services, one of the biggest differentiators for consumers is overall customer satisfaction.
Credit unions tend to have higher customer satisfaction scores than commercial banks. This goes back to the fact that credit union members are part owners when joining. Additionally, credit unions can provide members with more personalized services than commercial banks due to their smaller size.
Individual credit unions may vary with their customer satisfaction scores. It’s recommended to reach out to various credit unions before making the final decision to join.
Branch Locations And ATMs
One misconception about credit unions is their lack of branches and ATMs across the country. While specific credit union branches and ATMs may be limited, many credit unions join a CO-OP Shared Branching Network. This allows credit union members to conduct a range of transactions at another credit union that is a part of this network.
According to the CO-OP Financial Services website, there are 5,970 branches across the nation. That is more than some of the biggest financial institutions, namely Wells Fargo, JPMorgan Chase, Bank of America, U.S. Bank and PNC.
Benefits credit unions receive through CO-OP Shared Branching Network include:
- After-hours access: Credit union members have 24/7 access through their express terminals.
- ATM availability: This network provides credit union members access to more than 30,000 ATMs throughout the country. Additionally, unlike most commercial banks, credit unions that are a part of this network will not charge non-network fees to use one of their ATMs.
Credit Union Eligibility Requirements
If you are considering joining a credit union, there are a few eligibility requirements that you must meet. While specific credit unions may have different requirements, the general conditions include:
- Family members: Most credit unions will allow someone to join if one or more of their family members have already signed up.
- Employer: Many employers sponsor their own credit unions to serve their staff. These types of credit unions are known as corporate credit unions.
- Geographic area: Since many credit unions serve a specific geographic location, membership may be open to anyone who lives, works and attends a school in that particular area.
- Group affiliations: If you are part of a group, such as a labor union, place of worship, school or homeowners association, you may be eligible to join a credit union.
Additional Requirements
Once you’ve determined your eligibility, there are a few other things you may need before you can start banking with a credit union. These requirements may vary depending on the institution you choose, but generally, the additional requirements include:
- A valid Social Security number
- A valid government-issued identification number
Furthermore, some credit unions may offer a bonus for signing up. For example, Arizona Central Credit Union will provide new members with $200 after they’ve joined.
Consider Arizona Central Credit Union As Your Primary Financial Institution
The choice of banking with a credit union or a commercial bank all comes down to your eligibility and personal preference. While banks and credit unions offer similar services, credit unions can provide their members with a more personalized experience and generally lower interest rates on loans and credit cards.
Arizona Central Credit Union has been serving the Grand Canyon State since 1939, and we offer a range of benefits that you won’t find at a traditional bank. Visit any of our nine full-service branches throughout the Greater Phoenix area, Flagstaff, Tucson and Show low to see if you are eligible to become a member. If you prefer, you can visit our website to sign up or get additional information.
