It’s a common misconception that credit unions and banks can be used interchangeably. However, some key differences mean these two terms should not be synonymous.
After reading this blog, you’ll have a better understanding of credit unions vs banks, the similarities, the differences, and even some additional support you can expect from credit unions. If you have specific questions about Diamond Credit Union, the Diamond team is happy to help.
Defining a Credit Union vs a Bank
Defining both credit unions and banks clarifies some clear similarities and differences between the two.
- Credit Union – A not-for-profit, member-owned, financial institution that offers a wide range of services such as making deposits, distributing loans, and allowing customers to open a variety of accounts.
- Bank – A public, for-profit financial institution, that offers similar services as a credit union including making deposits, approving loans, and opening accounts.
Based on these definitions, the main difference between these two institutions is that credit unions are not-for-profit and are member-owned. Let’s dive into the details and specifics of the similarities and differences between credit unions vs banks.
What Services Are Offered At Each?
The services offered at each institution are relatively the same. You’ll find the following at Diamond Credit Union and banks nationwide.
- Checking & Savings Accounts
- Debit & Credit Cards
- Online & Mobile Banking
- Auto & Motorcycle Loans
- Home Equity Loans
In general, banks are known to offer investment and financial advisory services along with what’s listed above. Depending on the size of the credit union branch, you may be able to find these services as well.
Other Similarities Between Banks And Credit Unions
You’ll find that both banks and credit unions offer personal and business services. So if you’re a business owner, either can be used as a one-stop shop for your finances.
Also, both institutions are insured in case of a bank closure. The difference is where they’re insured. Banks are insured through the Federal Deposit Insurance Corporation or the FDIC. Credit unions are insured under the National Credit Union Administration.
The National Credit Union Administration and the Federal Deposit Insurance Corporation insure up to $250,000 per individual depositor.
Differences Between Credit Unions And Banks
Outside of those core services, there are actually quite a few differences between the two financial institutions. Although there’s not a definite answer to which financial institution is better, these differences can help you make a confident decision about what’s best for your situation.
Who Owns The Institution?
From the definitions, we can see that banks are for-profit while credit unions are not-for-profit. But what does this really mean?
When you become a credit union member, you also become a part owner. Which also gives you a piece of control and a vote for decisions. And when profits are made for the credit union, this money is returned to the members through lower loan rates or fees and higher savings rates.
Because of the organizational structure of a credit union, the more members, the more money the credit union can give back to its members.
On the other hand, a bank is for-profit meaning it operates more like a traditional business. The bank is owned by stakeholders who are looking for a profit. So, in general, you’ll tend to see higher fees, interest, and minimum balance requirements with banks compared to a credit union.
Who Can Become A Member?
Only credit union members can utilize the services of that financial organization. And in order to become a credit union member, there are some boxes you need to check. On the other hand, there are no requirements for you to become a bank member.
Most credit unions require you to live, work, or attend school in the specific areas where branches are located. For example, to become a member at Diamond Credit Union, you need to be within Berks, Montgomery, Chester, or Bucks County in Southeastern Pennsylvania.
Other credit unions may only allow members who work at a specific business, but community-chartered credit unions, like Diamond Credit Union, mean anyone within the specified area can join.
How Accessible Are Credit Unions vs Banks?
Because of the location restrictions of credit unions, you may think they are less accessible compared to banks. The reality is that there are roughly the same amount of banks and credit unions nationwide, and you can easily find a credit union near you.
As a credit union member, you also have the ability to use a worldwide network of no-surcharge ATMs. So when you’re traveling, you still have access to this benefit. If you have the Diamond app downloaded, you can easily search for an ATM near you.
Advantages Of A Credit Union
Now that we’ve outlined some key differences between credit unions vs banks, let’s emphasize some advantages of a credit union.
As mentioned above, the organizational structure of a credit union shifts perspectives on the financial institution’s focus and priorities, which may be advantageous to community members.
Community Relationships
Because members of the community own credit unions, there is a greater emphasis on integrating the organization into the community and strengthening those relationships.
There is a social aspect in a credit union versus a bank because all the members live in the same area. So, a lot of times credit unions will have community events, charitable foundations, and local sponsorships.
Specifically at Diamond Credit Union, we have a program called Younity. Which helps you get connected to not only our credit union’s services but also others in the community.
Member-Focused Service
The driving force behind credit unions are members of the organization, rather than stakeholders. This means that credit unions are known to prioritize the interests of their customers.
Because of this, credit unions often offer personalized assistance and have members be the decision-makers of the organization.
This customer-focused initiative also means credit unions generally have lending flexibility and can help members who may have limited credit histories. There is more of a holistic approach rather than a financial, strategic approach that banks need to have to make higher profits.
Annual Reports
Additionally, some credit unions have annual reports that can highlight the total profits and assets of each year, along with community events and recognition. This can be a benefit to members who are looking for transparency in how their money is being handled.
Have more questions about credit unions vs banks? Ready to talk specifics about Diamond Credit Union? Give us a call at 610.326.5490 or stop by one of our branches!
