Credit Unions vs. Banks

You have likely heard of credit unions and how they can be an option to banks. But what exactly are they? In a nutshell, credit unions operate differently than banks (clients are actually shareholders), they may be smaller and offer more personalized service, and they can sometimes pay better interest rates.

If you are trying to figure out the kind of financial institution that suits you best, you may wonder, “How do credit unions compare to banks?” Here, you’ll learn some of the key ways credit unions vs. banks stack up, including:

•   What is a credit union?

•   What are the pros and cons of banks?

•   What are the pros and cons of credit unions?

What Is a Credit Union?

Credit unions are financial institutions like banks, and they offer products you’d expect such as checking and savings accounts, loans, debit cards, checks, money orders, and more. They can provide apps and online access, just as banks do. Credit unions may charge fewer fees, often with no minimum or a very low minimum deposit to open an account.

One difference between a credit union and a bank is that credit unions are run as co-ops, meaning each member has a stake in the business. Just like buying stock in a company, you own a small piece of the credit union when you join.

Here are some more features of credit unions:

•   These organizations are typically smaller than big banks and specific to certain locations, while offering similar services.

•   As nonprofits, credit unions are usually designed to serve their members, generally paying higher overall interest rates on deposits and with lower fees and penalties.

Typically, credit unions serve people only within their geographic area, and you need to be a member. Some credit unions have specific requirements for membership, but most make it easy to meet the qualifications, such as:

•   Where you work, or your industry

•   Where you live

•   Where you attend school or worship

•   Which organizations you are a member of.

Pros and Cons of Traditional Banks

If you currently bank with a large financial institution with a well-known name, you might be hesitant to switch banks and, in particular, move your accounts to a smaller, seemingly less popular credit union. Here are some of the upsides and downsides of keeping your money at a traditional bank.

Pros of Banks

Consider these benefits:

•   One of the biggest overall benefits of choosing a traditional bank might be that they generally offer a larger array of financial products, including checking and savings accounts, loans, and more. They can be your one-stop shopping for many financial needs.

•   They often have extensive networks of brick-and-mortar branches, possibly both nationally and internationally.

•   They usually have large ATM networks as well.

•   Traditional banks are likely to be insured by FDIC (Federal Deposit Insurance Corporation), adding a layer of security in the very rare event of a bank failure.

•   Bigger banks can be quicker to adopt new technology, such as launching mobile check deposit.

Cons of Banks

In terms of the downsides:

•   Traditional banks may not offer as high interest rates as online banks or credit unions do.

•   Similarly, traditional banks vs. online banks and credit unions often charge higher fees.

•   A big bank may not provide as specialized, personalized services as credit unions do. Credit unions may provide ATM fee reimbursement, financial literacy seminars, and other perks.

•   Most credit unions are insured by the National Credit Union Administration, or NCUA, vs. FDIC, which helps protect funds in the event of a financial institution failing.

Pros and Cons of Credit Unions

Now, take a look at the upsides and downsides of credit unions.

Pros of Credit Unions

On the plus side, credit unions can offer the following:

•   Credit unions offer many of the same services as traditional banks, satisfying a range of client needs.

•   They typically offer higher interest rates on deposit accounts because profits go back to the members.

•   The fees are often lower than at big banks, both on deposit accounts and other financial products. For instance, credit union vs. bank mortgages may have less costly fees.

•   Credit unions are typically known for personalized service and may offer financial literacy classes and more to support their members.

Cons of Credit Unions

Now, some of the minuses:

•   Membership is required. It’s possible that a person may not qualify to become a member/shareholder.

•   Credit unions are typically local or regional; there may not be many options in a given area. Shared branch credit unions may, however, offer greater reach.

•   They may not offer the kind of 24/7 accessibility and extensive customer service options as traditional banks.

•   While many services are offered, they may not have all the bells and whistles that a traditional bank offers, such as peer-to-peer payment platforms (say, Zelle) or a state-of-the-art app.

Recommended: Do Credit Unions Help You Build Your Credit Score?

Credit Union vs. Bank

Here’s a comparison of how credit unions vs. banks stack up.

Business Model and Pricing

Banks are for-profit enterprises while credit unions are not. Typically, banks may charge higher fees and interest rates to borrow money. They may have higher minimum deposit requirements as well and lower annual percentage yields (APYs) on deposit accounts.

Membership Requirements

Banks are open to all who can apply for and be approved for services. Credit unions, however, have requirements to join and become a shareholder. They might cater to members of the military or employees in a certain industry. Or they might simply charge a small fee. But there will be some requirement to be met.

Services

Banks are known for having a full array of services: various kinds of accounts, loans, and other financial products. Credit unions usually have diverse offerings but may not offer quite the breadth as they tend to be smaller institutions.

Customer Care

Credit unions may have the edge here; they are known for personalized attention and coaching to help members gain financial literacy and reach their money goals. A large traditional bank may not be able to take such interest in each client.

Accessibility

Traditional banks may offer many physical branches, 24/7 customer service, and a national and even international network of locations and ATMs. Credit unions are likely smaller and local, with more limited access.

Technology Tools

Larger traditional banks tend to be more advanced in terms of technological innovation than credit unions. They may have state-of-the-art websites, apps, and services like peer-to-peer payment platforms.

Here’s how these bank vs. credit union differences look in chart form:

Finding the Right Credit Union

If you think a credit union may be the right fit for you but are unsure where to start, you could ask your co-workers or neighbors if they use one and if they like it. Since a credit union is a local financial institution, word-of-mouth can make for valuable research.

You could also search in your geographic area making sure to check the eligibility requirements, and nationally, if you’re able to use a different local branch as part of the network. Then, joining is just like opening up any other bank account if you meet the membership credentials. Additionally, a credit union account allows you to do most tasks online or over the phone.

Opening a Bank Account

You may decide that a bank vs. a credit union better meets your needs. If so and you are shopping for a new place to deposit your funds, your decision may come down to finding one with easy access, low fees, and a competitive APY.

Traditional banks may charge ATM and overdraft fees — as do credit unions. And although both often provide overdraft protection by pulling from a savings account, there is also the risk that you’ll be charged a fee.

If you are looking to try a new financial institution, consider SoFi Checking and Savings, which is an account that allows you to save, spend and earn, all in one place. It has no account fees and offers a competitive APY. Plus, you’ll receive free access to 55,000+ ATMs worldwide and you can send money right from the app to almost anyone with our P2P transfers.

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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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