Whether you’re opening your first bank account or are considering moving to a new financial institution, you may be wondering about the differences between a bank and a credit union. While both are good options, there are a few things you should keep in mind before opening a new account.
Banks are for-profit organizations owned by shareholders and investors, meaning one of their main goals is to maximize their profit. Though this can mean more fees and higher interest rates on loans, banks still have a lot of positives to offer. For instance, traditional banks like Wells Fargo, Chase, and Bank of America have hundreds of brick-and-mortar locations across the nation, making it easier for account holders to find a physical location close to their home. They also tend to have ATMs located in grocery stores and gas stations, allowing for easy access for members should they need to withdraw cash while traveling on vacation.
Due to the size of these financial institutions, they typically offer a wide range of services and products beyond just your typical checking and savings account. For example, many have financial advisory services for account holders needing help with loans, investments, or even simple budgeting. They also tend to have more technological advancements than credit unions, including better mobile apps that make banking simpler for account holders.
Perhaps most importantly, banks are insured by the Federal Deposit Insurance Corporation (FDIC), an agency that provides insurance for up to $250,000 per account. This protection guarantees that should the bank go under for any reason, account holders will be paid what they are due. However, certain accounts are excluded from FDIC policies, including stocks, bonds, money market funds, annuities, and insurance products.
Credit unions are owned by its members and are not-for-profit organizations. Membership for these financial institutions is typically limited, meaning that you must live in a specific city or work for a certain company to become a member. Credit unions also tend to be smaller organizations with fewer brick-and-mortar locations. Should you move out of state, for example, it’s likely that you’ll no longer be near your credit union. However, though locations are limited, members often have more personalized service since they are owned by its members and operate for its members. Credit unions also typically offer higher interest rates on savings accounts than traditional banks, allowing members to earn more on their deposits. Along with this, the transaction or service fees for accounts are generally lower than banks, which can help personal or business account holders save big every year.
Though they aren’t under the FDIC umbrella, many credit unions are insured by the National Credit Union Administration (NCUA), which protects members for up to $250,000 should the credit union close. However, not all credit unions qualify, so you’ll want to check if the one you’re considering is insured before opening an account.
The bottom line
Before opening a new account, make sure that you do your research and visit multiple banks and credit unions. You must assess your own needs and financial goals and open an account with the financial institution that most closely aligns with them. And if you need additional assistance deciding what’s right for you, reach out to a financial advisor who can help you plan a path forward.