Credit Unions vs Banks: What's the Difference & How to Choose the Best One For You

Almost all of us could use a little help understanding the differences between credit unions and banks.

While both options have pros and cons, one might be more suitable for your current financial goals. Learning about personal finances is essential for anyone entering adulthood or exploring new opportunities to improve financial health. Getting better informed on financial responsibility starts with determining whether a credit union or a bank suits you. This article will review both options' key features and benefits and guide you toward the right decision for your financial well-being.

What Are Credit Unions?

Credit unions are not-for-profit institutions owned by their members. Like a bank, you can open a checking account, apply for a credit card, take out a business loan or finance a house through a credit union. However, in a credit union, profits are returned to members and delivered through better savings rates, reduced fees, and lower loan rates. 

In many cases, credit unions are operated by volunteers working on a board of directors that credit union members select. Therefore, credit unions allow members to have a say in how the organization operates. Additionally, credit unions often focus on fostering financial well-being and responsibility, as well as supporting the community. 

Who Can Join a Credit Union?

Credit unions typically work with a field of membership policy that determines whether someone is qualified to join the institution. For instance, below are some common reasons you may be eligible to join a credit union.

• Your employer sponsors a credit union.
• Your family member is part of a credit union.
• You live, work, attend school, or worship in a specific geographic area and may join a local credit union.
• You belong to a specific group. For instance, a particular place of worship, school, homeowners' association membership, or labor union membership could qualify you for a credit union.

What Are Banks?

Before discussing the pros and cons of credit unions vs. banks, we must understand what banks are and why many people choose them. Banks are for-profit, privately owned institutions offering financial products and services. Because banks aim to generate profit and transfer their earnings to stockholders, they are unlike credit unions. Bank customers do not have ownership or stock in the institution as they would with a credit union. Typically, banks also offer higher rates and fees than credit unions.

The Pros and Consof Credit Unions vs Banks

Deciding between a credit union or a bank for your financial well-being is not something to take lightly. Below is a deep dive into both financial options' primary pros and cons to help you decide.

Credit Union Pro: Lower Interest Rates and Fees for More Affordable Financial Products

Credit unions are helpful because many offer similar financial products as banks. However, credit unions are usually more affordable. Credit unions typically offer lower interest rates for personal loans, car loans, equity loans, mortgages, and other financial products than banks, so you end up owing less interest on what you borrow. Typically, commercial banks charge a percentage point or two more than a credit union for the same loan, meaning you'll end up paying more over the life of your loan.

Credit unions also normally charge lower fees and often do not require minimum deposits. Individuals concerned about costly bank service fees will encounter more affordable rates when managing their finances with a credit union.

Bank Con: Higher Interest Rates and Transaction Fees

A significant negative of banks is higher interest rates and transaction fees compared to credit unions. Banks typically charge monthly maintenance fees on accounts and may add additional charges for miscellaneous fees. Depending on your financial institution, you might incur costs you'll need to prepare to pay.

Credit Union Pro: Higher Rates on Deposits

Credit unions also typically offer higher interest rates on members' deposit accounts than you'll find with banks. Because credit unions are not-for-profit and are exempt from federal taxes, members gain access to premium rates to help grow savings faster. 

Credit Union Con: Fewer Branches

Some individuals prefer banks as their primary financial institutions because credit unions often have fewer branches than traditional banks. Living far from a credit union could cause problems if you need regular access to a branch. However, most credit unions offer seamless online and mobile banking so members can access accounts from anywhere!

Bank Pro: More Convenient for Some

Because some people may have limited access to credit unions, individuals often consider banks more convenient. Major banks operate locations in every corner of the country, making them a practical solution for those who travel frequently or need to visit branches daily. 

Credit Union Con: Fewer Products and Services

While credit unions like Philadelphia Federal Credit Union offer nearly identical products to banks, some institutions provide fewer products and services, which can be a challenge for some members. Smaller credit unions with limited products may not be able to offer extensive loan options or additional services like business accounts. 

Bank Pro: Wider Reach

One benefit of banks is that they often operate over larger regions, nationwide or even internationally, making it easier for customers to bank wherever they are. Banks have a wider reach than most credit unions, making them ideal for some individuals. Additionally, many banks have services to help individuals exchange currencies, transfer documents and finances from one nation to another, and connect with global organizations.

Credit Union Pro: Expert Financial Education Resources

Those looking to learn how to better manage their finances will benefit from the expert financial education resources credit unions offer. Most credit unions offer a vast wealth of information regarding managing your finances, including seminars and access to extensive information to help you prevent fraud and theft. These financial education resources are vital to the future of your financial well-being and can set you up for financial success.

Credit Union Con: Membership Required

Because there are specific eligibility requirements that an individual must meet to benefit from the products and services that credit unions offer, you'll need to apply to become a member at your chosen credit union. However, many membership eligibility requirements are lenient, making it simple for many to access credit union services.

So, Which One Is Right for You?

By now, you should have a clearer understanding of the differences between credit unions and banks, what each has to offer and where you could encounter challenges. If you're a Philadelphia resident who found credit unions' typical features and services ticking the boxes for your financial needs, membership is just a few steps away! Click here to become a Philadelphia Federal Credit Union member today and join your neighbors on the road to