The world operates on currency, and while we used to trade in animals, weapons and even tea, money makes the world go around. After you earn it, it is yours to spend, but most people put some aside for future purchases, and the safest place is in a lending institution.
Most of us have had savings and checking accounts, which have many benefits. There are also many options for where you want to secure your hard-earned cash, like banks and credit unions.
Are they both the same? What is the difference between a bank and a credit union?
A bank is a good option when you have the money you want to put away. There’s a bank on every other street corner, and they all work hard to get your business.
Is it difficult to join a bank?
You can do it easily if you have a reason to open an account. Banks don’t restrict membership, and in fact, you don’t become a member. Instead, you are a customer that uses the financial institution to engage in their services. You just open an account, get a bank card, and are in.
A credit union is a little different. A multi-national company does not own it but rather each member. When you open an account at a credit union, you must purchase shares, entitling you to equal voting rights and access to annual meetings. There are also committees you can join, and if you desire, you can become a board member. Some credit unions may have a field of membership that caters to specific groups according to:
- Education Student or alumni of different learning institutions
- Occupation Teacher or military member
- Association Labour union, church denomination or professional group
- Region Living and working in a specific community
- Family Relative of a current member
2. Financial Products
Many banking products are offered at traditional banks and credit unions and come at varying rates. A bank generally has the widest variety and usually has a network of locations with commercial and personal products like:
- Credit cards
- Business loans
- Savings accounts
- Chequering accounts
- Money transfers
- Mutual funds
Credit unions also offer most of these, if not all, but it can depend on the size of the local institution. They may offer one main type of credit card and have a narrower range of investment products, but generally, you can get most of what the banks offer.
3. Fees and Rates
People are attracted to banks based on their fees and rates. No one wants to pay to have a chequing account and doesn’t want to be charged for every transaction they make. They also want high-interest rates for savings and investments and low-interest rates for loans and mortgages.
Banks can’t typically compete with credit unions because they have higher overheads and shareholders to pay. This translates into fees for accounts that don’t meet minimum balances and premium accounts with extra incentives. You may also be charged for overdraft protection and bounced cheques.
Credit unions have lower operating costs and run not-for-profit, so any earnings above operational costs get reinvested within the community or back to its members. They usually offer higher interest rates on savings accounts and lower mortgage rates. Because mortgages are competitive, you can shop at both lending institutions to find the best current-rate deals.
4. Business Operations
Banks are larger corporations with many branches around a city, region, province or even across the county. This gives them power and convenience, especially with bank machines. They tend to have stringent lending criteria, so qualifying for mortgages and loans can be harder.
Credit unions are more local, with some extending nationally. There will be fewer branches and bank machines, so you may find it harder to bank when not in your local area. Digital banking has freed up these limitations, benefiting traditional banks and credit unions. The lending criteria with a credit union are usually easier, so more people can qualify for loans and mortgages. They are generally more flexible with borrowers, work with non-traditional earners, and lower credit score individuals.
The best thing about banks and credit unions is that they give you more choices for where to borrow and put your money. They both have benefits, so it comes down to personal preference and where you best fit in. Traditional banks tend to have a wider variety of financial offerings, but with a credit union, it’s more than that. You get a sense of belonging to something and can feel the difference as a member.