Choosing a financial intuition is an important decision for a young person opening their first account or for established adults moving to a new area. The choice between a credit union, local bank or national bank can be the first decision in narrowing the field of possibilities. There are differences between these institutions that should be considered before opening a new account.
Credit unions are different from banks in a few ways. First, a credit union is owned by its members and that ownership is based on deposits made by those members. Second, credit unions are not-for-profit cooperatives that are created for the benefit of their membership. Banks, on the other hand, are owned by their investors or shareholders, who may or may not conduct personal business with the bank. Banks are “for profit” entities that are created for the benefit of their investors or shareholders. The higher profits that a credit union could make if they were a bank are instead allocated to either paying higher interest rates on deposits, charging lower rates on loans, lower fees or a little of all of these.
Credit unions have membership requirements, which may include working for a particular employer or living in a certain geographical area. Banks, however, are able to provide their services to more individuals, which in turn has allowed them to become much larger in size. Banks can vary in size and locations, from Wells Fargo with their coast-to-coast reach to Union Bank, which is largely located in Virginia.
Banks tend to provide more options than most credit unions in terms of the financial products and services that they offer. National banks offer more locations, so if one travels a lot or plans to move, there are fewer headaches in setting up new accounts, changing bill pays and waiting on new checks. Banks also tend to lead in the online service department, which has helped them attract customers as more and more banking has moved online.
All banks are not created equal and there are some differences between national banks and local banks. National banks are catering to the national populace and fees that might be acceptable in one location may seem steep in another. National banks also tend to be highly stringent to policies and less likely to bend to meet customers’ needs. Local banks, however, understand the environment of the community they serve and can tailor their policies to more closely meet the needs of its customers. In addition, community banks also tend to make decisions at the local level for approving loans or credit applications than a national bank, which may send the application to a regional hub for processing.
The recession and credit crisis are still fresh in our minds and for some there still may be a lingering feeling of uncertainty when depositing money into any financial institution. For instance, some people may wonder what happens if the credit union or bank goes bankrupt? The Federal government guarantees up to $250,000 of coverage on deposits. Federal Deposit Insurance Corporation (FDIC) covers the banks’ deposits, while the National Credit Union Share Insurance Fund (NCUSIF) covers credit unions’ deposits.
When thinking about which type of financial institution to use, there are many issues to consider, such as convenience of locations and ATMs, value of financial products, list of services and fee structure. Figure out how much weight you wish to give each characteristic as it relates to your needs. Like many things in life, you may not want to put all your eggs in one basket, but rather choose more than one financial institution to give you the best of both worlds.