What’s the Difference Between Banks and Credit Unions?
5/2/23 | Stan Sorensen, Chief Marketing Officer
What’s the Difference Between Banks and Credit Unions? Ensure Your Money Is in the Safest Place Possible.
It’s not every day that bank scandals or interest rates headline the news. But as of late, financial volatility — interest rate fluctuation and the Silicon Valley Bank shutdown — makes many people wonder if their money is in the right place.
Although Americans stick with the same bank or credit union for 17 years on average (according to 2021 Bankrate survey), they may now be wondering if their banking situation is secure. Are there are better options for deposit accounts than banks? While fundamentally credit unions and banks are similar, there are some significant differences that need to be understood.
Similarities of Banks and Credit Unions
1. State Regulation
Banks and credit unions are financial institutions that are chartered to do business in a given state. In Utah for example, both are chartered and regulated by the Utah Division of Financial Institutions.
2. Retail Banking Services
Both banks and credit unions offer retail banking services including checking and savings accounts, debit and credit cards, consumer loans, and, in many cases, home loans.
3. Deposit Insurance
Deposits in a bank are insured by the FDIC for up to $250,000. Credit union deposits are similarly insured by the National Credit Union Administration (NCUA). The FDIC and NCUA are independent government agencies; their respective deposit insurance programs are fully backed by the federal government.
This is where the similarities end.
4 Key Differences Between Banks and Credit Unions
1. Banks Are For-Profit. Credit Unions Are Not-For-Profit.
Banks are for-profit corporations, many are publicly held and traded on a stock market such as NYSE or NASDAQ. As for-profit corporations they pay corporate taxes on the federal and state level. Credit unions are not for profit companies. As such, they do not pay federal or state taxes regardless of how much money they make. Many take the money they would normally pay in taxes and use it to offer incentives to their members – higher interest rates, lower fees, etc.
2. Credit Unions Have Members. Banks Have Customers.
Note the word “member.” Credit unions were first established to serve specific groups, such as employees of a given company or industry, or members of the military. Becoming a credit union customer required qualifying for membership, then joining. If you didn’t qualify, you could not do business with that credit union. Many credit unions have expanded their qualifications, but they still exist. For example, you may need to live in a particular county or counties or a specific city or neighborhood. Banks do not require membership. Anyone who meets the requirements to open a type of account can do business with a bank.
3. Banks Operate Across a Larger Geography. Credit Unions Limit Their Range.
Likewise, banks tend to operate across a larger geography. Altabank, as part of the Glacier Family of Banks, can offer products and services to customers in eight states: Montana, Idaho, Colorado, Arizona, Nevada, Wyoming, Washington, and, of course, Utah. Credit unions are limited in their geography. For example, America First Credit Union, currently one of the largest credit unions in the US, can only do business in selected counties in six states.
Also note that the nation’s largest banks – Chase, Bank of America, etc. – run branches across the country. Even the largest credit unions are limited to certain states or regions. As a customer of one of these banks, you own easier access to a branch almost anywhere you might be travelling. A credit union member cannot say the same thing.
4. Credit Unions Specialize in Consumers. Banks Add Businesses to Their Offerings.
Turning to products and services, as said above, banks and credit unions offer similar things. But banks have more options. For example, the Silicon Valley Bank shutdown created more concern about whether large accounts are properly protected via FDIC insurance. Altabank has account options that protect deposits up to $150 million dollars. Credit unions don’t have a similar product.
Credit unions were established for consumers, not businesses. Most banks have products and services for business customers, from small businesses to the largest enterprise. Even when a credit union advertises business accounts, they often lack the expertise to advise a business and put together options that best meet the business’s needs.
Credit Unions vs. Banks
Now’s a great time to assess your current banking situation to ensure it’s working for your specific needs. There are pros and cons to banking with a bank or a credit union. We are all bombarded with advertising from banks and credit unions, and some ads make a good case for doing business with one or the other. It is important to understand the differences between banks and credit unions to make the best decision for your financial needs, both short and long term.
ABOUT THE AUTHOR
Stan Sorensen is Chief Marketing Officer at Altabank. He joined the bank in 2019, and has previous marketing and leadership experience in software and healthcare. When Stan is not in the office, he enjoys spending time in mountains.