How Credit Unions Work: What You Need to Know

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Choosing the right bank can seem overwhelming. You need to navigate a range of options, choosing one that will help you manage and save your money according to your goals and means.

 

However, when evaluating your options, it’s important to remember that working with a traditional commercial bank isn’t your only choice. You might consider working with a credit union instead.

 

Many have heard of credit unions without thoroughly understanding what they are or how they differ from banks. This general overview will answer basic questions you may have about the topic. It covers the major differences between banks and credit unions, helping you better determine whether joining a credit union instead of becoming another bank customer might be the ideal choice.

 

Credit Unions vs. Banks: Essential Differences

 

Credit unions offer many of the same essential banking services and products that banks do. Contrary to what some believe, along with basic services, many credit unions also offer modern conveniences, such as online and mobile banking tools. They may also be members of credit union networks, giving their members the freedom to access credit union ATMs throughout the country or world.

 

The main difference between credit unions and banks is simple: banks are businesses with shareholders, whereas credit unions operate on a not-for-profit basis.

 

This can impact the customer experience dramatically. Because banks have a responsibility to earn profits for their shareholders, they don’t always prioritize customer service. Their main goal is to ensure shareholders are happy.

 

They go about achieving their goal in various ways. For example, banks have been known to consistently charge higher transaction and overdraft fees than credit unions. Banks also tend to offer less attractive interest rates for loans and savings accounts.

 

Some banks can even engage in behaviors and practices that are significantly unethical regarding customer treatment. One particularly egregious example, in which Wells Fargo was discovered to have opened unauthorized customer accounts and charged customers unnecessary fees, resulted in the company being fined $575 million in 2018.

 

That may be a dramatic example, but it exemplifies the difference between credit union customer service and bank customer service. Credit unions exist to serve a need. Banks are businesses.

 

Ownership in a Credit Union

 

Credit unions are generally co-ops. Boards consisting of elected volunteers make key decisions without having to follow the rules or standards established by executives who may be divorced from the communities their branches serve. 

 

Additionally, all members of a credit union have the right to cast votes on various decisions about how the credit union operates. This may appeal to you if you believe you’ve been voiceless as a bank customer in the past. 

 

It’s also worth noting that because relationships between local branches, managers, and members are localized at credit unions in a way that’s impossible at large banks, decision-makers at credit unions are often more informed when deciding, for instance, whether an applicant is worthy of receiving a loan. On top of that, eligibility requirements for credit unions are typically less rigid than at banks, requiring only that members live in the area.

 

Keep these points in mind when deciding between a credit union or a bank. Credit unions offer many of the same benefits as banks while also offering unique features that may appeal to you.