| How to Decide Whether to Keep Your Money in the Bank or a Credit Union Sep 15th 2012, 20:00 Both credit unions and banks generally provide the same menu of financial products and services to consumers, but with a few distinct differences. Both back cash deposits with a special insurance fund (FDIC for banks and NCUA for credit unions) and may provide the same of financial protection against fraud or theft. But there are a number of differences that may affect your decision on which to use––this article attempts to help you reach this initial decision. - Understand some of the basic differences between the two entities. Although these two types of financial institutions may provide the same general breadth of services, there are inherent differences that may help you to decide between whether to keep your money in a bank or a credit union. For example:
- Credit unions have members, whereas banks have customers.
- Credit unions are not-for-profit organizations, meaning that any earnings are returned back to the membership in the form of better rates and lower fees.
- Banks funnel profits to their stockholders through income generated from a variety of resources including service charges and interest income.
- In order to take part in a credit union, you must join the organization, whereas anyone who wants a checking account (or loan) can originate the account at a bank.
- Consider what you want from a financial institution. Determine what you truly want from a financial institution. Do you simply need a free checking account and debit card or are you looking for a wide range of products and services to handle your every financial need?
- Can either a credit union or a bank satisfy your need? In some cases, a credit union may also offer products like insurance, trusts and investment services (in addition to the standard products)––much like a bank; so make a quick evaluation of all your needs in order to partner your needs with the right financial institution.
- Could your relationship evolve? For example, if you are a small business owner looking for a personal checking account, you may possibly be interested in commercial services down the line. Many credit unions offer commercial loans and deposits, so find out if there's room to expand your relationship should you desire.
- Are you looking to make money from your accounts or want free services? More credit unions than banks offer free checking, however you may find a wider range of product offerings at some banks. While credit unions typically offer extremely competitive rates, you may want to also explore options at a bank in terms of product variety and rate hikes based on deposits.
- Examine the financial institution's fee structure. Credit unions are not-for-profit entities and typically offer lower fees than some larger banks. However, community banks (under $10 billion in assets), even though guided by shareholders, may also have lower service fees. Investigating the fee structure of each individual financial institution will give you a better idea of what kind of fees your relationship could incur is the best way to determine whether a bank or a credit union is best for you.
- Inquire about value-added products. Although fee based, both banks and credit unions offer special products that provide value and/or convenience to consumers. Products like rewards based credit or debit cards, higher interest checking or overdraft protection can make your life easier if you are willing to pay the fee.
- Read the financial institutions' quarterly earnings report. Credit unions are not one to tout profits, however you may be able to access a credit union annual report to see how much non-interest income it generated and/or any drastic increases. Most banks have a quarterly earnings report readily available online. Examine profitability increases, especially in the introduction of either new fees or an increase in existing service charges to determine if the bank is right for you.
- Ask about how to have fees waived. Credit unions and community banks may be more inclined to waive certain fees in exchange for a bigger share of your relationship. For example, if you open a checking account, but agree to initiating direct deposit and use your debit card during the month, the bank or credit union may waive the monthly checking account fee.
- Inquire about product sophistication. A few decades ago only banks delivered highly sophisticated products and services. Today, credit unions can match banks in product delivery so pinpointing your specific needs will be important to determining which financial institution is best.
- Determine your mobility. Although both banks and credit unions offer mobile banking, online banking and bill pay, some financial institutions make it easier to access both online and in person services with increased branches.
- Can the financial institution accommodate you no matter where you live? If you tend to travel, ask about branches in other cities and countries. Credit unions may only have a few branches in their footprint area, but may be part of a shared branching network, which allows their members use other credit union branches free of charge.
- Are the financial institution's electronic services robust enough to serve you? In this case, it typically comes down to the individual credit union or bank. While some people may not require a service like mobile banking, others will form their entire financial relationship using their smartphone. Interview financial institution candidates in order to identify the types of electronic services you'll need.
- Decide if you are eligible to join a credit union. With the community credit union movement growing every day, nearly everyone is eligible to join a credit union. In the past, consumers could become credit union members through work or where they worshiped. However, today just living in a certain city may grant you membership.
- Visit the National Credit Union Association (NCUA) website to locate a credit union near you. Not sure if you have a community chartered credit union in your town? Check with the NCUA for a list of eligible options and then make contact with at least one or two.
- Ask your employer. Your employer may have credit union membership as part of its benefits packages, even allowing employees to make deposits into their account at work. Visit human resources to find out if your company is part of a credit union.
- Ask a family member. You can also join a credit union if a family member has membership in one.
- Ultimately, it is recommended that you evaluate financial institutions based on their offerings, not on whether it's a credit union or a bank. Because so many community banks can provide the same low fees and competitive rates as a credit union, be sure to have fully explored your individual financial requirements in conjunction with the best deals offered by either institution before making a decision. However, bear in mind that some credit unions will still manage to offer specialty services, geared toward specific industries that you may be a part of, in which instance, the credit union may be the more advantageous choice.
- Ask friends and family members for a referral. Did they have a good experience with a local bank or credit union? Find out why or why not.
- Consider your total relationship. If you have a tremendous amount of money you'd like to transfer, speak with a credit union or bank representative first. High dollar relationships may garner special privileges and rates that may not be advertised. What may not seem to be an attractive encounter at first may evolve once your financial institution takes into consideration your specific situation. It requires individual discussions beyond just reading the paperwork to find out what is really available.
Edit Warnings - Always examine your financial statement and/or online banking for questionable fees or fraud. Recently many banks have increased fees, which may not be readily apparent to customers.
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