If you need a place to keep your money, you can either choose to open a savings account with a bank or a credit union. Although they are both financial institutions that offer many of the same things, there are a few subtle differences that make each stand out from one another.
A Credit Union Is Owned By Its Members
While a bank is owned by an individual or a corporate entity, the credit union is owned by each person who has an account. If the credit union makes a profit, the money is distributed to members as a dividend. Profits may also be reinvested into the institution in the form of lower interest rates or other perks.
You Generally Have to Live In the Community the Credit Union Serves
Unlike a bank, a credit union generally requires its members to live in the area that it serves. For instance, if a credit union was based in Chicago, you would have to live in Chicago to become part of the institution. In some cases, it may be possible for those who are married, related to or live with a member to join regardless of where he or she lives.
Credit Unions Generally Have Different Loan Requirements
As a credit union is a community organization, it does not have a large profit margin nor does it keep most of its profits. Therefore, it may have different loan requirements to ensure that it gets back any money that a member borrows. Whereas a bank would allow a borrower to put only 3 percent down on a home loan, a credit union may require 10 percent down. It may also require higher credit scores for borrowers to get the best rates or limit how much a borrower may have if he or she has no credit or poor credit.
How Are Banks and Credit Unions Alike?
Banks and credit unions are alike in that they offer many of the same products. Mortgages, home loans and credit cards may be obtained through either type of financial institution. Furthermore, they both offer savings and checking accounts, which may also make it possible to have paychecks deposited and bills paid electronically though that account.
If you are looking for a place to keep your money, you may find what you are looking for at either a bank or a credit union. However, those who are looking for smaller branch sizes, personalized customer service and an institution that tends to value people over profits, a credit union may be your best bet.