During a time when the majority of consumers have less trust in major banking institutions, there seems to be an exodus from traditional banking to more localized credit unions. This form of banking offers numerous financial benefits to help consumers enhance not only their savings, but also increase how they store and spend their money. While both financial institutions offer specific advantages and disadvantages, it’s essential to learn about these features in order to make a well-rounded banking decision.
Traditional Banks vs. Credit Unions
Perhaps one of the primary differences between credit unions and traditional banks is how they operate. Credit unions are classified as nonprofit organizations. Therefore, they have more control over interest rates for CDs and savings accounts, which yield higher payments to you. Also, because of this, they can offer substantially lower interest rates on personal loans, auto loans, mortgages and even credit cards.
Another significant distinction one should understand is how credit unions are focused. That is to say, credit unions are member-centric banking systems, also referred to as cooperatives (see Your650Score). Therefore, the entire institution is operated and owned by its members. This offers distinctive advantages over traditional banks, which are often owned and operated by stockholders. Therefore, when you bank with a credit union, you’re actually a part owner of that institution.
In terms of customer service and stability, cooperatives such as these offer far greater benefits and security than larger banking institutions. Instead of trying to appease a select group of stockholders, major decisions made by credit unions are for the genuine benefit of all its members.
Although there are countless benefits when choosing to bank with a credit union, such as: higher savings account fees, greater flexibility with personal loan qualifications as well as offering personalized service as its member base is always much smaller than traditional banks, there are some disadvantages you should be aware of.
The most notable disadvantage of a credit union versus a traditional banking institution boils down to convenience. Typically, credit unions only offer a handful of physical locations within a small service area. While this is great for those who rarely travel, if you find yourself away from home this can be an issue. Because larger, traditional banking institutions are found throughout the United States, they offer a myriad of locations and other services such as online banking and bill pay. While it’s possible to find a credit union with the aforementioned, expect fewer service options with credit unions. On the other hand, expect greater customer service and member-driven benefits than with traditional banking institutions.