Are Credit Unions Better Than Banks?

Are Credit Unions Better Than Banks?
  • Opening Intro -

    Consumers have more than one place where they can park their money, take out a loan or obtain a credit card.

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Banks and savings and loan associations have long served local communities, but so have credit unions, a type of financial institution that may meet your personal financial requirements.

Who Owns What?

Most banks are owned by investors, shareholders who have a financial stake in the institution through the stock that they have bought. Credit unions, however, are owned by its members who are automatically part owners. When credit unions are profitable, these institutions give dividends to its members.

What About Profits?

Another significant difference between banks and credit unions is that banks are for-profit institutions, while credit unions are not-for-profit. This doesn’t mean that a credit union doesn’t make a profit, rather it returns those profits to its members as dividends. Banks are for profit institutions and roll its profits back into the business, distribute profits to shareholders as dividends, or both. Credit unions typically have better lending rates and terms because these institutions don’t seek to maximize profits.

Number of Locations

One big advantage banks have over credit unions are the number of locations available. Except for small, local banks which may have few branches, national banks such as Bank of America, Wells Fargo and PNC Bank, may have thousands of bank buildings and automatic teller machine locations scattered across the country. Credit unions may have one or two locations, perhaps more covering a wider region in one state, but usually not nationally. However, many credit unions belong to ATM networks, allowing members to withdraw cash from thousands of teller machines across the country without a fee, although monthly limits may apply.

Who Can Join?

Any adult can open a bank account, but not everyone can join a credit union. Credit unions are restricted to select groups of people, usually employees of a company, members of a church or civic organization or through a community charter. Qualification restrictions are set by the federal government, not by the credit unions. Nevertheless, 91 million Americans do belong to credit unions reports the Credit Union National Association.

Are My Funds Insured?

Monies in your bank account are insured by the Federal Deposit Insurance Corporation. Monies in your credit union are insured by the National Credit Union Administration. Both the FDIC and NCUA are backed by the full faith and credit of the United States of America; most accounts are protected for up to $250,000.

So, are credit unions better than banks? I’ll let you be the judge of that. Likely, you had certain ideas about credit unions that weren’t entirely correct. It is hoped that this summary has given you a clear and accurate picture what this alternate financial institutions has to offer consumers just like you.

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Categories: Consumer Financing