Every day, we rely on our bank for survival. Think about it. With many western societies rejecting cash, in favor of digital payments, it’s become rare for anybody to store their money anywhere else. In fact, we know from recent banking meltdowns (in Great Britain and the United States) that it’s very difficult to function when your bank is out of action.
Despite this, we tend to pick banks quickly, with only a little consideration for factors like day to day reliability, customer service and long term security. ‘Cause a bank is a bank. They’re all mostly the same, right? Well, not really. For instance, did you know you don’t have to keep your money in a bank? You could use a credit union instead.
The difference between a credit union and bank is simple; credit unions don’t make money from their customers. It doesn’t automatically make them a better choice, but it does mean they’re worthy of consideration. Let’s take a look at some more differences.
A Question of Profit
First things first, commercial banks are operated as ‘for profit’ businesses. Credit unions are ‘non-profit’ businesses. It means credit unions typically offer superior customer service and lower transaction fees. They also tend to carry slightly higher interest rates. Commercial banks, on the other hand, have lower interest rates and higher transaction fees.
Yet, there are pros and cons associated with both options. While it’s tempting to view credit unions as the logical best choice – all profits come back to customers in the form of lending and savings perks – these institutions are smaller, with less market security in the event of industry instabilities. Simply put, they don’t have the same ‘too big to fail’ set up that’s common for high street banks.
The Pros and Cons of Credit Unions
It’s worth noting that, in order to join a credit union, you must first apply for membership. This is different from opening an account with a commercial bank. There are stricter eligibility requirements. So, the biggest disadvantage of this option is the fact you must be part of an associated organisation to join.
Common organisations include churches, local community groups and schools. Businesses are another big supporter of credit unions. To join one, you must be part of an organisation or business which has established its own ties to a union. Find and join one of these and day to day banking with a credit union is not much different from using a traditional bank.
When you join, you become an investor. This is most evident in the highly personal and attentive style of customer service. Credit unions are, essentially, member owned. Customers have more influence over how they are operated and developed. If you think you’d benefit from a more personal, more local banking system, this could be the right option for you.
The Pros and Cons of Commercial Banks
The biggest advantage of using commercial high street banks is their convenience. The vast majority of people bank using this system and it is smoother, more efficient and better protected. There are fewer eligibility requirements (none at all in some cases) and banking services are designed to be constantly accessible via phone or the internet.
Transaction fees are higher and interest rates are lower, but it’s a small price to pay for the privilege of being able to move and access your cash 24/7. Don’t forget, if you live in a city or large town, there’s likely to be two, three or more branches you can visit.
The problem with commercial banks is their lack of personalization. They may try hard to convince customers that their banking experiences are paramount, however, everybody gets the same attention and services. When things go wrong – with your own finances or the bank’s decisions – it can feel like the help offered is superficial. It’s worth remembering this when deciding where and how to manage your cash.
How to Decide Between a Credit Union and Bank
The choice really depends on who you are as a person and how you prefer to bank. It is all well and good celebrating the ‘customer first’ mentality of local credit unions, but are there enough branches in your area? If you need to speak to somebody quickly, is there a reliable customer service team on hand to hear your problems?
Think about what you need from your day to day banking routines. If convenience is of the utmost importance, a traditional bank is probably the best option. If you have the time and freedom to bank at a local union – with fewer services, but better perks for customers – staying small and friendly could be the better choice.