Article originally posted July 10, 2015 by Gerri Detweiler on Credit.com
If you’re not a member of a credit union, you may wonder why anyone is. You don’t see their ATMs all over town, nor do you hear much about their state-of-the-art mobile capabilities. Yet some people sing their praises, and prefer them to banks. Both kinds of financial institutions typically offer checking accounts, savings accounts, CDs, car loans, mortgages, credit cards and other financial products. So really, what’s the difference?
First, banks are in business to make money, and credit unions are nonprofit. If you do business with a bank, you are a customer. Banks exist to earn a profit for shareholders. If you instead use a credit union, you are a member (and the credit union operates for the benefit of its members); there are no shareholders or customers. And credit unions tend to use money from fees and interest rates for the benefit of members, who may also serve on their governing boards.
But as financial institutions they can look very much alike from the outside. Here are some things credit unions offer that banks have a hard time matching:
1. Competitive Car Loans
According to the National Credit Union Administration, in 2014, the average 36-month used car loan carried an interest rate of 2.72%. Contrast that with the typical bank interest rate of 5.26% and you can see why some people look to credit unions for their car loans. The rates for 48-month new-car loans were 2.63% for credit unions and 4.76% for banks. Getting pre-approved for a car loan can save you money, keep you on track for how much you planned to borrow and help you avoid additional credit inquiries on your credit reports. (You can see how credit inquiries are affecting your credit by getting your free credit report summary on Credit.com.)
2. Free Checking
While it’s not impossible to find no-cost checking at a bank, you’re more likely to find it at a credit union, since 72% of credit unions have no fees with no minimum balance, compared with 38% of banks, according to a Bankrate survey. Likewise, fees at credit unions tend to be lower. Still, you have to check. Not all credit unions offer free checking, and not all banks charge for it. At the same time, check for fees, which tend to be higher at banks — and while you’re at it, see if there are ways to avoid them. Here are some of the questions you should ask before you open a bank account.
3. Discounts & Special Deals
Credit unions may offer special deals on everything from amusement park admissions to cellphone plans. Ask. We checked several and found discounts for concert admissions, insurance, cars, flowers and more.
Banks are more likely than credit unions to have hard-and-fast lending requirements for credit scores, income, debt, etc. that must be adhered to. If you are an investor with shares in a bank, that can be reassuring. But if you’ve just started a new job and need a loan, it can be frustrating. A credit union may be more likely to consider individual circumstances in making its lending decisions.
5. Money Required to Open an Account
You can typically open a checking account for less than $10 at a credit union, according to Bankrate’s survey. Banks typically required more than $60. So if you have little to deposit, a credit union may be your best option.
‘Differences’ That May Not Exist
Those are not all the factors to consider, though. Banks typically offer a wider choice of financial products, and they may have many more locations and ATMs (though credit unions may belong to networks where withdrawals are free). Credit unions have long claimed to offer more personal service, and that can be true — or not. As credit unions have expanded their memberships, the relationships that have long been a selling point may not be as strong. And Americans consistently prefer the personal touch. We like being known and recognized. Surveys show people prefer community banks to larger, regional banks because of the personal service. Yet, if the staff at your bank doesn’t change as your bank grows (or merges with another one), you may get the same recognition and smiles from the same people you’ve been doing business with for years.
Banks have also been leaders in mobile banking, but credit unions are catching up. Most now have mobile apps.
Finally, both insure up to $250,000 on deposit. They do it through different agencies, but the maximums for insured accounts are identical.