Traditional Banking vs. Credit Unions
By Molly C. Dickinson
When it comes to choosing between a traditional bank or credit union, deciding where to unpack your money after a move shouldn't be as difficult as getting that upholstered sofa up the stairs. An evaluation of your own financial needs and banking habits, coupled with some basic knowledge of what traditional banks and credit unions have to offer, will help get you on the right track to finding the perfect fit.
Although most of us have had a working knowledge of our traditional banking system since we opened our first savings account or took out our first car or college loan, credit unions are somewhat less familiar entities. While traditional banks provide financial services to their members as they aim to turn a profit for their shareholders, credit unions exist as not-for-profit institutions owned and operated exclusively by their members.
Credit unions provide many of the same saving and lending services as traditional banks, including checking and savings accounts, certificates of deposit (CODs), credit cards and loans. Although many of their services are the same, there are some key differences between traditional banks and credit unions that may help you decide where to take your business.
The biggest benefit credit unions offer over traditional banks is they tend to set higher interest rates on savings and lower interest rates on loans and credit cards. For many credit union members, that translates to more money accruing in their accounts and less being spent on the privilege of buy now, pay later.
According to Mark Waller, business development director of the Associated Credit Union, joining a credit union gets you "More bang for your dollar," and he credits the source of this "bang" to credit unions' non-profit basis. "We aren't required to pay taxes on our business," he says, "and we pass the savings on to our members." In a recent Bankrate.com comparison of the top 50 credit unions, thrifts and banks, which assessed rates on such services as one-year certificates of deposit (CODs), new car loans, credit cards and money market accounts, credit unions consistently offered the best average rates.
The main downfall of credit unions is often their inability to compete with traditional banks in terms of the number and variety of financial services they are able to offer their members. When it comes to ATM services for instance, traditional banks typically boast far more branch and ATM locations, which means fewer and lower surcharges each time you punch in your pin. And, if you're an avid check-writer, be aware that many credit unions don't return checks or provide certified or cashier's checks to their members. Not all credit unions offer safe deposit boxes either. In other words, be sure to check that the particular services you require are available at any credit union you consider joining.
Because they can typically offer a greater variety of services, traditional banks can also make it easier for customers to center their banking at a single location or through a single service, rather than having to manage multiple financial services through multiple institutions with a more limited credit union. Also, as with any potential bank, be sure to inquire about specific service fees and determine whether any additional interest your balance may earn might offset some of or all of these costs.
Another important issue to consider is that as a member of a credit union, you'll also own part of that institution. Potential members submit an application and, once approved, purchase at least a single share to ensure lifelong membership and a say in how the credit union operates. Legally, credit unions can only offer membership to certain common groups, so check to see which groups you may already belong to. For instance, many employers, not-for-profit organizations, community associations and even neighborhoods have established credit unions. Ask around or call your state credit union league representative, Michele Barre, at (800) 768-4282, ext. 3455, to find locations in your area.
Probably the simplest and most effective way to determine whether a traditional bank or credit union is right for you is to begin by looking at how and where you manage your money. Knowing how many times a month you use an ATM, whether there's a branch location convenient to your home or to your office, or that your employer sponsors a credit union for employees is important information that will assist in identifying potential institutions. Once you have an idea of what your options are, call potential banks and/or credit unions and ask them about the specific issues that are most important to you. Then compare the answers. In any case, verify that the bank you choose is insured by the Federal Deposit Insurance Corporation (FDIC), or the credit union you choose by the National Credit Union Association (NCUA), both of which back your deposits up to at least $100,000.
Also, remember to take note of the quality of service. Whether you choose a credit union or a traditional bank, managing your money shouldn't be an uphill battle. An institution that promises a pleasant trip to the bank or a genuinely helpful voice on the other end of the line will likely make you much happier in the long run.
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