How to decide where to keep your money is shown here.
A significant consideration is where to keep your money.
As young people, we frequently select a bank or credit union based on family recommendations. But that doesn't necessarily mean that the financial institution your parents found successful is the best for you.
Banks and credit unions are extremely distinct types of organizations, each with their own advantages and disadvantages
Let's examine each of their qualities to assist you decide which is the better option for your requirements.
A credit union is what?
A credit union is a financial entity that is owned by its members and is not for profit (like you). Credit unions only exist to provide the best rates to their members because they are not required to make a profit.
Compared to banks, credit unions are smaller and only allow membership from a select set of people. They might all be workers for the same business, adherents of a particular faith, locals of a certain area, or participants in a community group.
As a member, you have a voice in the decisions that affect how your credit union is run.
Pros of credit unions
advantageous interest rates. Credit unions often offer higher interest rates on deposits and lower interest rates on loans because they are not set up to generate a profit. According to the National Credit Union Administration rate report for the first quarter of 2021, credit unions had the best rates for practically every form of mortgage, checking account, savings account, and certificate of deposit.
lower costs Credit unions are able to charge as little as possible because they are nonprofit organizations. For instance, unlike banks, many credit union checking accounts don't charge monthly maintenance fees or require a minimum account balance.
improved client services. Personal service and community involvement are valued by credit unions. You are more likely to receive services that are suited to your requirements since policies are decided by members. Additionally, you can get to know branch managers and others who make loan decisions personally, which might help you get a loan.
Security. The National Credit Union Administration provides up to $250,000 in insurance for credit union accounts (NCUA). Open numerous accounts if you require bigger coverage limits.
Cons of credit unions
ineffective technology. Since credit unions want to charge you as little as possible, they don't have as much money to invest in releasing new software and gadgets. Having said that, you might not require all the newest bells and whistles if you find one that offers the fundamental web services you use the most.
confined areas. Credit unions are more intimate and committed to fostering a close-knit neighborhood. Naturally, there will be fewer branches and ATM locations as a result. The CO-OP Shared Branch and ATM network was established as a result of the collaboration of various credit unions to address this issue. You can utilize the branches and ATMs of all the other credit unions in the co-op nationally if your credit union is a member of the co-op.
a small membership. A "field of membership" refers to the specific membership qualifying rules for each credit union. For instance, the Navy Federal Credit Union accepts service members—both active-duty and retired—as well as their household members, family members, and Department of Defense employees. However, more significant national credit unions today simply require membership in a few simple organizations. For instance, all you need to do to join Alliant Credit Union is donate $10 to Foster Care for Success and sign up as a member.
financial items with little options. The majority of credit unions provide a variety of loans as well as checking, savings, and certificate of deposit accounts as well as basic credit cards. However, they don't provide the extensive range of financial goods that banks do.
What is a bank?
Investors own the for-profit institutions known as banks. A bank's primary objective, in contrast to a credit union, is to generate profit for its investors.
Anyone who resides in a bank's serviceable region is eligible to open an account and become a customer; banks do not place restrictions on eligibility based on specific demographics.
Customer is the essential term here. You are not a "member" of a bank, unlike a credit union, and you have no influence over bank policies.
Banks can be divided into online-only businesses and physical locations. Online banks don't have any physical locations; they are entirely virtual. Although they are unable to provide face-to-face service like traditional brick-and-mortar banks, they can offer cheaper rates due to their lower overhead.
Banks: Pros
even more places. In comparison to credit unions, big banks have more locations and ATMs. For instance, Chase offers more than 16,000 ATMs and over 4,700 branches, making it easier to access your money wherever you are. Nevertheless, as technology develops, there is steadily less of a need for in-person banking.
additional financial goods Money market accounts, investment accounts, wealth management services, and a greater selection of credit card possibilities are more frequently provided by banks.
improved technology Banks have more money to spend on glitzy websites, useful apps, and other technology that will make your life simpler. Just keep in mind that greater fees and unfavorable rates are how you pay for the development of this technology.
no membership field. You must reside in the same state as some small regional banks. Banks do not, however, need to meet any further qualifications in order to participate.
Security. The Federal Deposit Insurance Corporation provides up to $250,000 in insurance for bank accounts (FDIC). You can distribute your money among many accounts for greater coverage.
Banks: Cons
higher costs Since a bank's primary goal is to increase profits for its stockholders, it levies higher fees. For instance, if you do not keep a minimum balance in your checking account, you may incur fines. Banks frequently charge higher overdraft and rejected check fees than credit unions, especially for non-premium accounts.
higher rates Naturally, banks provide less enticing rates than credit unions because of their for-profit goals. Despite this, online banks provide greater rates than traditional banks.
less adaptable. A board of directors sets tight guidelines and regulations for banks on a national level. Because of this, they are less adaptable than credit unions, where you can influence the rules. Customer service problems are a sure thing when rigidity and corporate, profit-focused rules are combined.
Why choose a bank?
If you prioritize convenience over cost, banks make the most sense. While fees and interest rates may be higher, there are more financial products available to you, better technology, and more branches and ATMs.
Keeping your money in a bank might be cost-effective if you utilize all of these added advantages.
Exactly why pick a credit union?
The goal of credit unions is to put their members first. A credit union is the greatest option if you want favorable rates, low fees, excellent customer service, and a company that has your best interests in mind.
This is particularly true if you don't require all the other features that banks provide.