Updated: Feb 10, 2022
A Credit Union is not a Bank *mindblown* - at least that was my reaction when I found out! This was such a basic thing that I did not know until after I was hired to work for a credit union (please don't judge me!). If you already know this, no need to read any further, smarty-pants! If not, stay and learn with me!
The main difference between a bank and a credit union is that a bank is for-profit, while a credit union is not. A bank is privately owned, while a credit union is actually owned by its members. What this means is that members of a credit union actually hold shares that give them voting rights on things like who's on the board of directors. That's great... but why does it matter? Understanding the difference between a bank and a credit union is the first step in finding the right financial institution for your everyday banking because these differences affect service fees, products, the type of advice you can access, just to name a few. Let's take a look at some of these key differences, and hopefully, by the end, you will feel confident in making your choice.
For-Profit vs. Non-Profit
So, we've covered how a bank is for-profit and a credit union is non-profit, but what does this mean for you, the customer? Generally speaking, this means credit unions don't have to worry about making a profit for shareholders, resulting in more money, time and effort put into providing its members with the best terms it can afford for their financial products. Simple words: Lower Fees!!
Banks, on the other hand, are here to make a profit. Meaning they put more focus into making that money (gotta keep shareholders/investors happy!), rather than focusing on the needs of their customers. In general, this can be seen in their higher service fees, interest rates, etc. Please note that this does not mean they do not care about their customers - that is NOT what I am saying!!
Range of Products
So for-profit might mean higher service fees, but it also means more specialized services and typically more advanced technology. As for products, banks and credit unions will offer very similar products, but banks' products will usually be more specialized or come with better perks. An example of this could be while both credit unions and banks offer mortgages, banks will often offer mortgages all over the country while credit unions may have more restrictions on where they can finance a mortgage. This is why when you are choosing a financial institution, it's really helpful that you know what's important to you as a customer. Are you looking for minimal service fees? Are you looking for a cutting-edge online banking experience? Do you dream of purchasing a home on some tiny, remote island? No? Just me?
Free Financial Education
This is a BIG one. Being member-owned, it is in the credit union's best interest to make sure that its members are educated on all things financial so that they can make informed decisions. This looks like one-on-one free, personalized financial sessions. During these sessions, members' current knowledge and situation are analyzed, any gaps in knowledge are rectified, and a personalized plan is put in place to help the member achieve their goals. Free means that not only do you not pay for it, but the advisor does not get any commission from it either. This is important because it can give you the peace of mind that any products the advisor suggests are because they truly think it will benefit you, not because they're gonna benefit from it.
So, which one is better??
These are just a few of the many differences between a bank and a credit union. Being a former credit union employee, you would think I would root for credit unions. I don't. I root for whatever is the best fit for you. One is not better than the other, they're just different. You need to know what is important to you, and then decide which one you like better based off of that. If you are indecisive like me, or you just want the benefits of both, take them both! No rule says you can't be a bank and a credit union customer. Who says you can't have the best of both worlds?