Banks vs. Credit Unions Where Should I Store my savings?
The time-honored question. Okay, maybe not. Credit unions were created in the 1860’s in Germany, banks had been around since the 1700’s. So, you’ve seen signs for both of these around. Are they any different? If so, how? What are the advantages and disadvantages of both? Today, we’re going to explore both of these financial entities a bit.
By definition, a bank is “an organization, usually a corporation, chartered by a state or federal government, which does most or all of the following: receives demand deposits and time deposits, honors instruments drawn on them, and pays interest on them; discounts notes, makes loans, and invests in securities; collects checks, drafts, and notes; certifies depositor’s checks; and issues drafts and cashier’s checks.” On the other hand, a credit union is a “non-profit financial institution that is owned and operated entirely by its members. Credit unions provide financial services for their members, including savings and lending. Large organizations and companies may organize credit unions for their members and employees, respectively. To join a credit union, a person must ordinarily belong to a participating organization, such as a college alumni association or labor union. When a person deposits money in a credit union, he/she becomes a member of the union because the deposit is considered partial ownership in the credit union.” (Definitions provided by investorwords.com)
Most important thing to note: Credit Unions are non-profit. Let me say that again. Credit unions are non-profit. So, how do they stay afloat? Well, first off, they have non-profit tax status, meaning they’re exempt from most state and federal taxes. Many people are switching to credit unions now, because most of them offer more fair rates, less fees, and are more personalized. The one that I belong to is a neighborhood one; it provides these services for the local community. Others offer services to organizations (the Pennsylvania State System of Higher Education has PSECU, for example).
Banks have an issue with credit unions, claiming they have an “unfair advantage” and that they take business away from them. Since the Credit Union Act of 1934, banks have lobbied to the government for the credit unions to be restricted or eliminated, to no avail. You’d think they’d have better things to spend their money on…
Until recently, credit unions were at a disadvantage to banks because they didn’t offer as many services as their counterparts. Recently, though, many credit unions have begun to offer more services. Banks usually are more apt to offer credit cards, because of the costs involved. Banks have more revenue, because of being for-profit, so credit cards and other things that have a higher start-up cost may be more readily available at banks than credit unions.
The locality that credit unions offer is both an advantage and disadvantage, so if you are someone who travels a lot, you may want to consider a bank with a national chain instead. Now, some credit unions have decided to thwart this a bit by offering to credit a certain amount of ATM fees a month. Also, many convenience stores offer surcharge-free ATMs. So, if you’re only withdrawing away from home, it’s really not a huge deal.
As you can see, credit unions have a lot of advantages over banks, especially in today’s day-in-age. The economy struggling as it is has pushed some banks into needing the bail-outs from last year. As long as credit unions have members, they won’t struggle as much as the business-based banks do. Am I saying you have to switch? No. But if you are just getting your first account or are moving, I suggest that you do your research and see what financial institution have what you want and/or what you need.
