Credit Unions vs. Banks: 6 Important Pros and Cons
Credit unions are not as well-known as banks despite the significant advantages of credit unions. Any person with a bank account, loan or credit card is likely familiar with the frustration of service charges, unavoidably high interest rates and distant customer service representatives. Credit unions are known to be better at handling the issues that so commonly arise with banks.
Read below for the benefits of credit unions compared to banks.
1. Customer versus Stakeholder
At a bank, you are considered to be a customer while at a credit union you are a stakeholder and member of the entity. Banks are for-profit institutions which means that their primary goal is to make money off of their customers in order to produce favourable returns for stockholders.
On the other hand, credit unions are not-for-profit institutions which means that their goal is to pass profits onto the members of the union. Because of the nature of credit unions, there are many added benefits for the members.
2. Lower Fees and Interest
Banks make a large portion of their profit from fees and other related service charges. Because credit unions are not focused on profits, fees related to your banking are generally lower or non-existent thereby saving you money in the long run. However, before signing anything, you should read your agreement with the credit union to anticipate possible fees.
Often, interest rates are lower for loans and higher for savings accounts. Again, credit unions are not focused on driving up profits meaning that the clients benefit from favourable interest rates.
3. Customer Support
Since credit unions are not focused on making money for stockholders, the customer service is much better. In fact, credit unions are known to help their members if they have poor credit, challenges applying for loans elsewhere and in difficult financial situations.
Credit unions typically offer services for their clients to help them manage their budget, get out of debt and find products that are suitable for their current needs. People with poor credit or experiencing financial difficulty should aim to contact someone within the credit union to explain their situation to get the best service.
4. Financial Products
Credit unions offer all the same products as a regular bank. Chequing accounts, savings accounts and credit cards are all examples of financial products that are offered by banks and credit unions. As mentioned, the fees, interest rates and overall management of financial products is where the difference lies between banks and credit unions. You may be able to find better rates at bigger credit unions like WFCU Credit Union.
5. Requirements to Join
To join a credit union, there are requirements such as geographical location, being in school or working with a specific employer. Although, once you join a credit union, you can be a member for life, if you choose, regardless of whether you still meet the requirements.
Having to meet the requirements of a credit union may seem daunting or exclusive. It is actually an advantage because it ensures that all the members have similar goals which helps the credit union act in everyone’s best interest.
6. Disadvantages of Credit Unions
Credit unions have many advantages as discussed in this article, but it is important to understand the disadvantages too before making a decision. The major disadvantage of a credit union is the lack of ATMs and branches available. If you regularly withdraw cash or wish to speak to someone within the credit union directly, this can be problematic.
That being said, online services for credit unions are usually excellent. If you still want easy access to ATMs for cash withdrawals, a solution would be to have an account with a regular bank to fulfill this purpose.