- The main differences between credit unions and banks.
- The pros and cons of both credit unions and banks.
- How your banking choices impact your community.
- How to decide if a credit union vs bank is right for your needs.
Table of Contents
- Credit Union vs Bank: What's the Difference?
- Key Credit Union vs Bank Differences
- Bank vs Credit Union Myths Debunked
- Credit Union vs Bank: Which is Best for a CD, Checking Account, Saving Account, and Money Market Account?
- Where to Get a Loan? Credit Union vs Bank
- Credit Union vs Bank Mortgage
- Credit Union vs Bank Auto Loan
- Personal Loan Credit Union vs Bank
- Second Chance Banking Credit Union vs Bank
- How to Decide if a Credit Union vs Bank is Right for Your Needs?
While both credit unions and banks offer savings accounts and checking accounts, credit cards, and loan products, the benefits and financial implications are extremely different. To help community members make informed decisions, the following credit union vs bank comparison sheds light on which may be best for you, your finances, and your community.
Credit Union vs Bank: What's the Difference?
The high-profile exposure and marketing of commercial banks attract customers who would sometimes be better served at a community-based credit union. A review of the hard facts indicates that when comparing credit unions vs banks, credit unions come out on top. For example, according to Statista, at the beginning of 2022, there were only 4,796 banks compared to 4,942 federally insured credit unions. Given the million-dollar marketing campaigns of banks, one would have imagined there were more commercial banks. Here are more credit union vs bank statistics to consider.
- Credit union total assets increased by 11.7 percent from 2021 to 2022.
- Americans who work with credit unions stay for an average of 14 years.
- Credit union membership exceeded 135 million in 2023, up from 98 million 10 years ago.
It’s also important to note that banks and credit unions are equally insured. Bank depositors have $250,000 in insurance coverage through the FDIC. Credit union members are backed up to $250,000 through the National Credit Union Administration. While both financial institutions are insured, there are many major differences that exist between the two options.
What is a Credit Union?
Formed as not-for-profit institutions, credit unions take deposits, issue loans, and provide a wide variety of financial services to their members. Becoming a member is simple. While once thought of as an exclusive lender, credit union membership is typically open to a designated group of people who live, work, worship, or attend school in a region. Qualifying community members can usually join by opening a savings account with a $5 deposit.
Those who join become members and are part owners of the organization. They gain access to low-interest loan products, higher dividend deposit products, discounted rates on special programs, and so much more. As part owners, they also have a voice and a vote for the future direction of their credit union. Although a credit union offers many of the same products and services as a bank, the differences are significant.
What is a Bank and How is it Different?
Banks are for-profit corporations that also take deposits, issue loans, and offer other products. These organizations are effectively owned by stockholders who receive a return on their investment through dividend payouts. That’s generally why banks charge higher interest rates and a wide range of fees at the expense of customers.
Bank customers are not limited to a defined group or region. Anyone can walk into a bank and open an account or apply for a loan without becoming a member. Although bank customers incur the expenses used to pay shareholders, credit union vs bank myths and misinformation continue to impede people from understanding they are able to switch to a credit union and the added financial and membership benefits they would receive.
Need help to decide if a credit union or bank is right for you? Review our recent blog, "Credit Union vs Bank: 7 Questions to Help You Decide Which is Right."
Key Credit Union vs Bank Differences
It’s important for working families to understand that seemingly small credit union vs bank differences can have a substantial impact on their financial health and wellness. Driven by the fact credit unions are run by their members and banks by a board of directors focused on generating profits, the trickle-down effect of decisions can cost people money or help improve their financial situation. Consider how the following credit union vs bank differences might affect you and your loved ones.
Difference #1 – Opportunity to be Heard vs Just a Number
Each member of a credit union possesses an equal voice and vote in the organization that can be expressed during the annual meeting. The gathering is a lot like a town hall meeting where the senior management team reports on the financial status of the credit union as well as any new initiatives they plan to take up the following year. Members are allowed to attend the meeting, share their voices, and hear the results of any recent board of director elections.
While credit unions want to hear from their members, commercial banks base their decision-making on what best serves their investors. The majority of stockholders usually decide who oversees a bank. With an understanding that bank executives largely serve at the discretion of investors, lending products and accounts are tailored to generate profits. Customers also pay higher interest rates and fees that end up in the accounts of out-of-state shareholders.
Difference #2 - Volunteer Board vs Stockholders
Credit unions are governed by members who have been elected to serve on a volunteer, non-paying board of directors. Their role is to communicate the will of the members to those handling day-to-day operations, set policies, and plan for the future. They also ensure the sound financial condition of the credit union and review the CEO’s progress toward achieving various goals.
By contrast, bank customers are not part of the decision-making equation. When a bank customer is dissatisfied, they can lodge a complaint with customer service or take their business elsewhere. Unfortunately, they have little influence to make a positive change, share their voice, or play an active role in the direction of the bank.
Difference #3 - Lower Rates and Fees vs Higher Min Balance Requirements/Fees
Credit unions are not financially beholden to stockholders, they can eliminate high minimum balances, offer lower interest rates, and avoid unnecessary fees. A credit union basically returns its modest profits back to its members by saving them money and expanding opportunities.
While it’s not uncommon for working people to assume they are well-served by depositing their hard-earned salaries in a bank this couldn’t be further from the truth. The money used to pay for slick advertisements and the impressive brick-and-mortar presence was paid for by bank customers. Banks may require their clientele to maintain minimum account balances or else monthly fees are triggered. This strategy either improves stock value through assets or takes in cash from account holders. The same holds true of loan fees and higher interest rates.
Difference #4 – Local Community Focus vs Nationwide Giving
A credit union approaches community service from its core. The focus tends to be on local area non-profits that have a positive impact on local families and the underserved of their community. Staff members roll up their sleeves to promote community awareness, volunteer, and ensure every donation is fully used for its intended purpose.
To dive deeper into the ways credit unions impact your state, review our blog, "How Are Credit Unions Better Than Banks at Supporting Local Oklahoma."
Difference #5 - Local Loan Decision-Making vs Nationwide Decisions
A local credit union serves its members and makes decisions based on more factors than just a credit score. When someone applies for a mortgage or car loan at a credit union, loan advisors have a working knowledge of the local area. When you apply for a loan or mortgage at your local trusted credit union, decisions are made locally instead of at a headquarters facility in another state. If your finances would not benefit from a loan, credit unions have special programs such as a Secured Credit Builder Loan to help you raise your credit score instead of placing you in a product that may cause you harm. Credit unions truly look out for you and your best interest.
Large commercial banks typically have their headquarters in other states and countries. The professionals running the operation may have no point of reference to a specific branch’s customer needs. Corporate banks simply create standardized loan products and policies at the top that leave minimal if any discretion at the local level. People who apply for a loan either qualify based on cookie-cutter metrics or they don’t.
Difference #6 - Expert Answers for YOUR Best Interest vs Earning Money for Stockholders
Credit unions are available via video banking, the phone, or in-person to answer any questions you may have about your financial situation. You can trust the advice you receive is in your best interest, versus just advice to help the associate reach a sales goal. If you have had trouble in the past and need help getting back on your financial feet, don’t be surprised if credit unions offer a Credit Builder Loan or Second Chance Checking opportunity to help you take the first step back towards regaining your financial balance versus just turning you away as unqualified. Credit unions are committed to their members’ success, not to making a profit to be shared with stockholders.
Difference #7 - Financial Resources to Educate vs Selling Products to Hit Sales Goal
While both credit unions and banks may offer resources on their website for you to reference, credit unions take it to another level. Explore your local credit union for resources such as financial coaching, free 1 on 1 money management, financial eBooks and guides helping you make long-term decisions about budgeting, debt resolution, retirement goals, and more. Credit unions create materials to promote a financially healthier community and membership.
Bank executives are under pressure to increase profits and hit sales goals. Turning financial outreach into a selling tool isn’t out of the question. Be sure you always compare options before settling on a solution so you can find the one that works best for your financial situation.
Difference #8 - Cooperative vs Single Resource
Credit unions collaborate with each other across the state and country to find cost savings and additional benefits for their members. This strength-in-numbers approach proves beneficial to the participating institutions.
For example, Allegiance Credit Union partnered with other local Oklahoma credit unions to give their members access to discounts on life insurance, auto insurance, and home insurance through MemberHaven Insurance Agency. Another local benefit is the partnership with First Rate Autos, which opens opportunities to purchase repossessed local credit union vehicles at a flat rate. At the national level, Allegiance participates in the CO-OP Shared Branch network of approximately 5,600 branches nationwide and the Credit Union Service Center network in Oklahoma.
It may come as something of a surprise, but large corporate banks are not nearly as big as people think. They are standalone companies that possess a limited number of branches and are in constant competition with each other.
Difference #9 - Member Service vs Profit
When people deposit their money or take out a loan from a credit union, they are essentially reinvesting in their community. The money credit unions generate is returned in the form of low-interest credit cards, mortgages, and personal loans. It is also returned to the membership in the form of higher dividend rates and lower fees. It’s a cycle of support that demonstrates we are all in it together.
Credit unions take pride in this partnership and show their appreciation through excellent member service. Most credit union teams go above and beyond to help their members achieve financial success, and they do it with a smile. Being a part of the same community, each of us deserves respect, kindness, and acceptance. Financial institutions should be about so much more than just profits, and credit unions are leading by example.
Difference #10 - Allegiance is a Credit Union for All
Allegiance is committed to providing access to resources for all. We value inclusion and value all backgrounds and beliefs, all cultures and kinds. This includes serving our Hispanic community through Alianza, a credit union being built by and for our Hispanic/Latino friends and neighbors. It includes the creation of special programs such as our Second Chance Checking and Secured Credit Builder Loan to help good people who suffered financial setbacks and credit blemishes get back on track. It also includes our Banking with Pride inclusion policies and donations to valued non-profit organizations. To explore all Allegiance does in the communities we call home, explore our ACU Cares Foundation.
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- The pros and cons of both credit unions and banks.
- How your banking choices impact your community.
- How to decide if a credit union vs bank is right for your needs.
Bank vs Credit Union Myths Debunked
Some of the myths that persist cloud the bank vs credit union decision-making process. But when people understand their origins and the flimsy reasoning behind credit union misinformation, the benefits of not-for-profits also come to light. Consider the credit union myths before becoming another number at a big bank.
- Difficult to Join a Credit Union: This myth is based on the fact you must be part of a designated group or connected to an area to join a credit union. Allegiance Credit Union, for example, offers membership to anyone who lives, works, worships, or attends school in Oklahoma’s Canadian, Cleveland, Grady, Lincoln, Logan, McClain, Oklahoma, and Pottawatomie counties. Becoming a member is easy! Just open a savings account and deposit $5.
- Money Not Federally Insured: This myth has its roots in the fact credit unions do not use the FDIC to insure depositors. Credit union depositors are insured up to $250,000 through the National Credit Union Administration.
- Credit Unions Only Offer Savings Accounts: A local credit union offers many of the core products and services you might get at a commercial bank. While too many to list, these can include accounts for checking, and retirement accounts, as well as mortgages, and loans for automobiles, boats, RVs, and home equity lines of credit.
- Technology is Lacking/Less Convenient Than Banks: The best credit unions provide the same online presence as multi-national banks. You have access to your money through free online banking, mobile apps, and Video Banking services. You can also apply for loans, open an account, and complete all necessary paperwork electronically, without ever having to step foot in a branch.
For more details countering the most common credit union myths, review our blog, "Top 4 Credit Union vs Bank Myths Busted."
Credit Union vs Bank: Which is Best for a Certificate, Checking Account, Saving Account, and Money Market Account?
On top of charging higher interest rates, commercial banks also offer lower yields on investment opportunities. A deep dive into a variety of bank vs credit union yield rates supports the conclusion that not-for-profit credit unions are in people’s best interest. These are the NCUA reported 2023 first-quarter national averages:
- 5-Year CD-10K: Credit unions provided 2.66 percent with banks at 1.83 percent.
- 1 Year CD-10K: Credit unions provided 2.28 percent with banks trailing at 1.74 percent.
- 3 Month CD-10K: Credit unions averaged 1.11 percent with banks at 0.88 percent.
- Money Market Account-2.5K: Credit unions led at 0.53 percent on average with banks at 0.43 percent.
Checking and savings accounts are not nearly the same at the local level. These are just highlights of an overall trend that points to credit unions delivering higher yields on their investments.
Where to Get a Loan? Credit Union vs Bank
It’s essential to keep in mind the hard data tells only part of the story. When taking out a loan, credit unions typically provide lower interest rates that save members money. And people who process loans have greater discretion to give members better rates than they might at a corporate bank.
Credit Union vs Bank Mortgage
It’s important to point out that every potential borrower comes to the process with a unique financial portfolio. Loan professionals at credit unions can use some discretion in terms of employment history and creditworthiness. But these NCUA reported national averages from the first quarter of 2023 demonstrate getting a mortgage from a credit union saves money over the life of the loan.
- 30-Year fixed-rate mortgage: Credit unions delivered an average interest rate of 6.57 percent, with bank customers paying 6.61 percent.
- 15-Year fixed-rate mortgage: Credit unions offered an average rate of 5.99 percent vs 6.07 percent at a bank.
- 5/1 Year Adjustable Rate Mortgage: Credit unions averaged a rate of 5.68 percent compared to banks at 5.85 percent.
Consider using a mortgage calculator to see how much you would save by securing a lower interest-rate credit union mortgage. Then compare the differences in bank vs credit union fees to clarify the total cost savings.
To discover the ways getting your mortgage impacts your community, review our blog, "Credit Union vs Bank Mortgage: 3 Ways Your Choice Impacts Oklahoma."
What is a Mortgage Broker?
If homebuyers are trying to decide between a credit union and a bank for their mortgage, they may also be considering a mortgage broker. These intermediaries earn a commission by connecting borrowers with lenders. Although they may help streamline the process, the service involves an additional cost. Credit union members can contact their local branch and talk to a real person who can run the numbers and find the best possible mortgage rate for their financial situation without additional costs.
Not sure if a mortgage broker is right for you? Explore our recent blog, "Mortgage Broker vs. Credit Union: Which One Should You Choose."
Credit Union vs Bank Auto Loan
It may come as no surprise that credit unions offer lower average rates for new and pre-owned vehicles. According to the NCUA, this is an example of where the national averages stood after the first quarter of 2023.
- Used Car Loan: A 48-month pre-owned car loan at a credit union averaged 5.43 percent interest compared to 6.37 percent from a bank.
- New Car Loan: A 60-month new car loan from a credit union averaged 5.38 percent interest against 6.06 percent at a bank.
Allegiance Credit Union also provides an AutoSMART Car Search option that helps community members identify local deals. Members can apply for an auto loan through the platform to purchase a new or used car or truck. Explore an auto loan calculator before you start your search.
To reveal the most important things to keep in mind when shopping for your auto loan, review our blog, "Credit Union vs Bank Auto Loan: 8 Critical Factors to Consider."
Personal Loan Credit Union vs Bank
The unsecured, 36-month fixed-rate loan at a credit union stood at 10.02 percent during the first quarter of 2023. Banks were charging 10.75 percent on average during that period. Rates will continue to evolve, but credit unions have consistently offered more competitive ones. When comparing whether a credit union or bank is best for your personal loan, be sure to compare the rate, terms available, loan approval process whether it is local or at a national headquarters and find out how your decision will impact the local community. Explore a personal loan calculator to get started.
Second Chance Banking Credit Union vs Bank
When community members and their families suffer a health or employment setback, the loss of income can negatively affect their credit history. A commercial bank may be unwilling to work with people struggling against adversity. Allegiance Credit Union has a Secured Credit Builder Loan program to help rebuild members’ credit scores and fast-track them to financial health. Allegiance also offers a Second Chance Checking Account for those who may have had issues with a checking account in the past.
How to Decide if a Credit Union vs Bank is Right for Your Needs?
There’s no escaping the hard facts that show why credit unions and credit union members are prospering. Allegiance Credit Union is a credit union for all. We are here for you, and we stand with you. We welcome you as you are. No matter your financial status, or where you are on this journey of life, we are ready to help you take the next step towards a successful financial future.
If you are ready to apply for a mortgage, car loan, personal loan, or open a checking account, you can get started today with our 24/7 online application. If you are interested in becoming a member, you can apply today.
Questions about Allegiance Credit Union or your unique financial situation? Please contact us today, we are ready to help.
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