How is a credit union different than a bank? (2024)

FAQs

How is a credit union different than a bank? ›

Banks are typically for-profit entities owned by shareholders who expect to earn dividends. Credit unions, on the other hand, are not-for-profit, member-owned cooperatives that are committed to the financial success of the individuals, families, and communities they serve.

The Bottom Line. Credit unions can be ideal for a low-interest loan, lower mortgage closing costs, or reduced fees, but you'll need to qualify for membership. Larger banks may offer you more choices regarding products, apps, and international or commercial products and services, and anyone can join.

Credit unions tend to have fewer branches than traditional banks. A credit union may not be close to where you live or work, which could be a problem unless your credit union is part of a shared branch network and/or a large ATM network such as Allpoint or MoneyPass.

Unlike banks, credit unions do not have shareholders to be concerned about, which means they can offer lower interest rates on loans and higher interest rates on savings. Credit unions have a reputation for being more personable than other banks.

Credit unions are generally considered to be safer than banks during economic downturns due to their conservative approach to risk and their emphasis on financial robustness.

Generally, credit unions are viewed as safer than banks, although deposits at both types of financial institutions are usually insured at the same dollar amounts.

Some have argued that credit unions are inherently inefficient because of their one-member, one-vote governance structure.

Experts told us that credit unions do fail, like banks (which are also generally safe), but rarely. And deposits up to $250,000 at federally insured credit unions are guaranteed, just as they are at banks.

There are a number of reasons why a bank or credit union may refuse to open a checking account. For example: A history of writing bad checks.

What does CD stand for in banking? ›

A certificate of deposit, or CD, is a type of savings account offered by banks and credit unions. You generally agree to keep your money in the CD without taking a withdrawal for a specified length of time. Withdrawing money early means paying a penalty fee to the bank.

What is predatory lending? Lending and mortgage origination practices become "predatory" when the borrower is led into a transaction that is not what they expected. Predatory lending practices may involve lenders, mortgage brokers, real estate brokers, attorneys, and home improvement contractors.

With a credit union, you might have to do some extensive research to compare accounts and find out what services they offer. Credit unions only serve certain groups of people and if the ones you can join don't have mobile banking or their apps aren't up to par, that could potentially be a major disadvantage.

One of the only differences between NCUA and FDIC coverage is that the FDIC will also insure cashier's checks and money orders. Otherwise, banks and credit unions are equally protected, and your deposit accounts are safe with either option.

Through right of offset, the government allows banks and credit unions to access the savings of their account holders under certain circ*mstances. This is allowed when the consumer misses a debt payment owed to that same financial institution.

While credit unions have a stronger focus on personal relationships and physical locations, online banks provide convenience through digital platforms. However, the presence of physical locations at credit unions offers numerous advantages.