Today’s FO debate: Credit unions vs. banks. While both financial institutions are great options to manage your finances and store your hard-earned cash, sometimes one makes more sense than the other.
Whether you’re a member of a credit union, or rely on a traditional bank’s checking and savings accounts to manage your finances, you may be wondering “which option is right for me?” The answer depends on your personal preferences and goals. Read on as we help you learn what to consider when choosing the best financial institution for you.
The difference Between a Credit Union and Traditional Bank
The main difference between a credit union and a traditional bank is that a bank is a for-profit financial institution, while a credit union is a nonprofit. Because banks are in the business to make a profit, they are focused on the interest of their shareholders, which is why they typically charge higher fees and interest rates – they have to stay in business and grow profits, afterall!
On the other hand, by operating as a nonprofit, credit unions are able to be owned by their members. As such, they operate in the best interest of their members, not stockholders. And, despite their recent rise in popularity, credit unions have been around since the early 1900s, starting off by having individuals pool together resources to fund fellow community members in need of loans. In 1934, President Franklin D. Roosevelt signed the Federal Credit Union Act, enabling credit unions in every state to charter not-for-profit unions as a means to promote smart spending and sound financial practices.
Since then, credit unions have evolved to become federally insured (just like traditional banks) and now serve more than 103 million members across the country.
When a Credit Union Could be the Better Fit…
If stellar customer service, low rates, and a community-driven approach is important to you, look no further than a credit union.
Credit unions are designed for their members, and even provide financial education as part of that membership, including in-person seminars on financial topics like budgeting, home buying, and retirement planning to ensure members have all of the information they need before making major purchases or financial decisions.
Plus, the fact that credit unions are not-for-profit means there are no minimum balance requirements to your accounts, along with lower overdraft and ATM fees. Members are also more likely to land lower interest rates on loans from a credit union in comparison to a traditional bank.
… and When to Stick with Traditional Banking
Credit unions can seem like a no brainer. Along with keeping their member’s best interest at heart, it’s a part of their mission to provide the best terms and lowest possible rates on loans and banking fees. However, despite keeping the best interest of their members at the forefront of what they do, credit unions aren’t the best option for everyone.
To start, if you move around a lot, you may be better off sticking with traditional banks. That’s because credit unions are only available to community members, so if you’re not affiliated with a specific community or area, you may not be accepted to the credit union.
And while we’re on the topic of moving around a lot, larger banks have more ATMs and branches accessible throughout many areas. So if convenience (and avoiding ATM fees) is important to you in your travels, it may be a smarter move to stick with a traditional bank.
Remember – regardless of the financial institution you decide to do business with, always conduct the proper research to ensure the rates and fees make sense for you and your financial goals. Happy banking!
The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, we advise you to consult with a licensed advisor.
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