The key to saving for your future is finding a banking institution you can trust to keep your funds safe. Meanwhile, you also want to choose a bank that offers the best benefits for your finances.
The particular benefits you receive can vary widely, depending on the type of financial institution you choose. Overall, there are two main categories: credit unions and big traditional banks.
If you are not sure about the differences between credit unions and big banks, it can be difficult to narrow down the right fit for you. These different financial institutions each have their own benefits and drawbacks. Credit unions are smaller and serve local communities, while big banks have the financial power to offer loans and other financial services. Below, you can learn more about the differences between credit unions and banks to decide which is beneficial for you.
A bank is a licensed financial institution that can make and receive loans and deposits. They often provide their services on a large scale to clients across the country, and may depend on shareholders. Overall, there are two types of banks:
A credit union is a financial cooperative, similar to a bank, though it typically serves only a certain region. It puts an emphasis on customer service, and is owned and operated by its participants and local workers.
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Typically small and local, a credit union specializes its policies to fit its users depending on the location, season and laws currently in place. Since they do not receive independent donations or depend on shareholders, credit unions work to please their users.
Since credit unions are small and focus on local communities, they thrive off of their ability to offer strong interest rates and personal relations. A credit union doesn’t have stockholders, so it works to please its owners instead. Owners are customers who open accounts with the credit union, reinforcing the interpersonal, familial connection they bank on.
This non-profit business model ensures that the credit union’s focus is on its members, not beneficiaries or other investors. As a result, there are several other advantages to banking with a credit union, including:
It is important to note that credit unions have rules and regulations for who can join. For example, they may specify that you have a local residence, attend a certain to school or work with a specific employer. However, once you join a credit union, you are a member for life, even if you no longer meet the initial requirements.
Using major banking institutions can provide many benefits for those looking for a reliable and well-known bank. Found on every corner, major banks like Bank of America or Wells Fargo are easily accessible. As a result, they are able to provide round-the-clock ATM access, so their customers can access their accounts at any time.
These large branches also allow online access and deposits. Using mobile apps and websites, customers are able to deposit checks, monitor their credit and check recent activity without leaving the comfort of their home.
Though credit unions offer several great advantages, these smaller banking institutions can pose difficulties for customers as well. Along with membership restrictions, credit unions tend to be smaller and unreachable at times. Having only a few branches in an area can prove challenging for those who live farther away, or tend to travel often. Many credit unions don’t charge ATM usage fees, but if you’re away on a regular basis, then a credit union may not be your best option.
Credit unions may also offer fewer options than a traditional bank. With numerous types of checking accounts, saving accounts and credit cards, bank patrons can choose the services that best suit them. Credit unions will likely offer fewer options due to their small sizes, and are therefore less customizable.
It is also important to consider security. The possibility of robbery is still alive and well, with over 2,700 bank robberies reported in 2018. Though most traditional banks are insured by the government, some credit unions are not. With this in mind, take some time to contact your local credit union to find out if it is insured. If not, you could lose some assets if the credit union fails or closes.
Though they are convenient, banks have several flaws that prevent them from being a well-rounded option. Compared to credit unions, traditional banks are known for their low-to-nonexistent annual percentage yield (APY). They APY on a savings account allows you to grow your wealth at an exponential rate while you keep your money in that bank. Thus, low APYs can drive potential customers away, as they are unable to build their savings efficiently.
These banks can also charge a wide range of fees for overdrafts, missed payments and other factors. Rather than face these extra charges, clients may choose to move to credit unions, which charge fewer and lower fees.
Before committing to any financial institution, it is important to do your research to understand specific policies and practices. This will help you decide which banking option suits your needs and offers the best benefits.
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