Ever wonder how credit unions are different from banks? Both offer similar services but are very distinct kinds of organizations. Let’s take a peek under the hood to get a better idea of what the real differences are between credit unions and banks.
For a long time, if you needed a checkbook, credit card, or just a place to have your paycheck deposited, you had a choice of visiting either a bank or a credit union in your community to open an account. These days, with online banking, it seems like it might not matter if your financial institution is based where you live—but does it?
Local community credit unions are thriving. What do these independent community financial organizations offer that big commercial banks do not? To answer that question, let’s take a closer look at what makes credit unions and banks different.
Credit unions are cooperative financial organizations owned jointly by their members. Everyone with an account has a share in the ownership of the credit union. As a member, you are both an owner and an investor in the credit union’s success.
Banks, on the other hand, are businesses that provide financial services to customers online and through networks of local branches. While most started out as locally owned companies, almost all banks are now part of big corporations, whose stock is owned by shareholders.
Credit unions are nonprofit organizations, meaning that any excess funds are reinvested in the union. Banks, meanwhile, are “for-profit” organizations. Any profits that a bank makes from the services provided to customers are distributed among its shareholders. The biggest shareholders also control the board that decides how the bank is run.
Some people wonder if credit unions are as safe, or safer than banks and whether credit unions are FDIC insured in the same way banks are. The answer is that credit union accounts are guaranteed by the federal government in exactly the same way as bank deposits are but by a different association.
The federal National Credit Union Association (NCUA) guarantees deposits in credit union accounts up to $250,000 against institutional fraud and financial collapse. The Federal Deposits Insurance Company (FDIC) offers the same guarantee for deposits made in banks.
To join a credit union, you will likely need to live, work, go to school, or worship in a particular area, but the criteria are usually pretty broad. For example, Foothill Credit Union is open to employees of education, healthcare, government municipalities, and more than 260 local businesses in the San Gabriel Valley. These employees’ families can also belong to the credit union.
You will also usually pay a small joining fee, typically $5. This is credited to either a checking or savings account that you open when you join. A bank does not have any special requirements to open an account, other than proof of identity and address, but might require a minimum opening balance for a checking or savings account.
Credit unions do not need to make money off their members in order to meet revenue targets or pay dividends, but banks aim to do so with every customer. As a result, credit unions offer on average better annual percentage yields (APYs) or rates of return than banks on the money members keep in their savings, investments, and other deposit accounts.
Credit unions also charge, on average, lower annual percentage rates (APRs) than banks do on the money they lend to members as credit card advances, mortgages, home equity lending and auto, personal, or student loans.
Because credit unions are not out to make profits, they do not have the same incentives as banks to make as much money out of every customer. As a result, credit unions also tend to charge lower fees for their services.
While credit unions have less incentive to maximize profits from every customer, they still depend on the long-term financial success of their members in order to succeed themselves.
This shared interest means members often receive better service and build stronger personal relationships with their credit union. Most bank customers, by contrast, need to start from scratch every time they contact their bank or visit a branch in person.
Credit unions also usually maintain deep roots in their local communities. This local connection means credit unions tend to have branch offices in their communities at a time when many banks are reducing their footprints. Foothill Credit Union serves the San Gabriel Valley community with branches in Arcadia, Covina, and Glendora.
Individual credit unions have sometimes struggled to match the online and mobile banking offerings now offered by the big banks. They also sometimes lack access to the nationwide ATM networks rolled out by major banking groups.
That said, well-established players like Foothill Credit Union offer fully featured online and mobile banking services that allow members to manage their bank cards, make payments, transfers, and even apply for loans—all directly from their device or computer. Foothill Credit Union members get surcharge-free access to more than 28,000 ATMs nationwide through the CO-OP network.
Many credit unions’ local connections go beyond personalized services and neighborhood branches. Many support financial literacy and well-being in their local communities with webinars, online courses, and classroom programs. Others go even further.
Foothill Credit Union offers scholarships for local educators and healthcare professionals through its Career Advancement Scholarship program and supports San Gabriel Valley schools with its Classroom Improvement Grant.
| Banks | Credit Unions | |
|---|---|---|
| Structure | For-profit | Nonprofit |
| Ownership | Shareholders | Members |
| Deposit Insurance | FDIC insured up to $250,000 per account | NCUA insured up to $250,000 per account |
| Fees | More fees, higher costs | Fewer fees, lower costs |
| Interest Rate | Higher than average APRs Lower than average APYs |
Higher than average APYs Lower than average APRs |
| Branches | More branches overall but not in all communities | Fewer branches serving a specific area or community |
| ATMs | State or nationwide networks | Increasing member access to nationwide ATM partnerships |
| Service Levels | Generally low. Personal interactions discouraged | High. Credit Unions prioritize personal service and long-term relationships with members |
| Technology | Comprehensive online and mobile banking services | Varied. But well-established players offer their members easy access to convenient and comprehensive online and mobile banking. |
Some of the advantages and disadvantages of both banks and credit unions may be more important than others. We summarize some of the most important ones below.
The scale and sophistication of large commercial banks comes with some big advantages:
At the same time, all that convenience can come at a price:
The local roots and co-operative structure of credit unions help support:
The smaller footprint and scale of most credit unions can sometimes mean:
That said, product offerings and technology services vary widely between credit unions. Many, including Foothill Credit Union, offer members access to comprehensive product offerings and convenient, advanced online and mobile banking services.
Choosing a bank makes sense if you value convenience, choice, and independence in your financial life. You may pay more in fees and interest over time, but you will have more products, features, and resources to choose from. However, you may find it difficult to get access to personal banking services or financial advice if you decide you need it.
Banking with a good local credit union makes sense if you feel a strong connection to your community or it is important to be able to talk with someone who has a personal interest in your financial health. This helps if you expect to stay in the same area for a long time.
Most importantly, local credit unions understand and are invested in the local community in a way that big banks are not. This can be important if you are also interested in putting down roots, especially if you can negotiate a good rate on a home loan as well!
Joining a credit union just makes sense if you appreciate great rates, lower fees, and long-term banking relationships with people who know where you come from and who understand where you want to go. Becoming a member of Foothill Credit Union comes with all that and more. You’ll qualify for:
You’ll also get access to discounted insurance policies, a car-buying service, and even reduced prices on theme park admissions!
Click below to learn more about the benefits of joining Foothill Credit Union today.
"I have been a member for 20 years or so and I have nothing but positive things to say about you guys. We have used summer skip for a car loan, house loan, Summer Savings program and I am very happy with Foothill Credit Union."
- Thomas R.
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