Opening your first bank account is a big step for many people. But, as you evaluate your options, it is good to know the differences between traditional banks and credit unions. Take a close look to see which type of financial institution and banking relationship may be best for you now and in the long run. Knowing their differences may help you determine which fits your needs the best, especially if you plan to maintain the same account throughout your lifetime.

For-Profit vs. Nonprofit

One of the most significant differences between banks and credit unions is their focus on profit and loss. A bank is a for-profit institution, and it may be managed privately or as a publicly-traded institution. That means that the interest rates and terms they offer and their credit decisions are profit-based.

Credit unions are nonprofit organizations that credit union members or account holders own. You could be one of those members. As a result, credit unions are less profit-focused and more focused on supporting the community they operate in or the people they serve. It's important to know that some offer profit-sharing, which means that members may receive profits from the organization. Additionally, the lack of profit motive often results in lower-cost services

A credit union focuses on providing its members with the best possible terms for financial products. That may mean that members get fewer fees, lower interest rates on loans, and better interest rates on savings vehicles than the typical bank customer does.

Banks have a responsibility to make a profit. As a result, product offering and service decisions are made based on what is profitable and best for the bank. They often charge higher fees and rates than typical at a credit union.

Why Choose a Bank?

There are good reasons to work with a bank instead of a credit union. Banks can allow anybody to open an account. In contrast, credit unions focus on membership requirements, such as being a part of specific professional or employment groups or operating within strict geographic boundaries. Consumers without any such affiliations can easily open accounts with a bank.

Banks are versatile and tend to be very modern, too. They offer more branches and often more robust online services, though credit unions are increasingly competitive in this area. Another key benefit is that a credit union may be locally based. In contrast, a bank may be available in more cities and even offer access to accounts overseas.

Many banks offer many features and tools to make investing easier, primarily through mobile apps. Banks also may have more tech to enable better overall user experiences, like setting up multiple accounts or managing transfers online. They tend to operate with a focus on improving technology both for consumer benefits and because it often helps them reduce costs and enhance profits.

Also, banks tend to offer a broader range of products and services. While some credit unions may deliver many products, banks tend to offer more. That may include commercial loans or larger loans for home purchases. They tend to have greater flexibility and financial stability to provide these options.

Why Choose a Credit Union?

There are numerous benefits to selecting a credit union as well. A credit union is quite different in the way it operates. They are often more member-focused, which usually means they provide a higher level of customer service. They also make decisions on loans and lending a bit differently, often focusing on the individual rather than the profit picture. Personal attention is often helpful, especially when you want to know your banker's name.

Credit unions also often provide many tools to improve a consumer's financial education. They may be able to provide insight on how to use credit wisely. They tend to support consumer education in credit card use, borrowing, and credit score management. Some also offer in-person seminars on buying a home, estate planning, or planning for retirement. They may be dedicated more fully to providing consumers with more hands-on access.

All of this aside, one of the most important benefits of choosing a credit union is the financial benefits. Many times, interest rates and fees are significantly lower. That often means that consumers will save money while having the same level of access to most financial products. That is an excellent benefit if you're a member because you keep more of your money.

FDIC vs. NCUA

Many people are concerned that credit unions are not insured by the Federal Deposit Insurance Corporation (FDIC). Banks are.

Credit unions do still have protections. The National Credit Union Administration (NCUA) helps to ensure that deposits made into credit union accounts remain safe and insured. Before the establishment of the NCUA, there was no protection in place. Now, NCUA provides guarantees for accounts for up to $250,000 per share owner, per insured credit union. If a credit union were to close or go into conservatorship, you are protected.

As for banks, the FDIC protection is much the same. This government agency provides deposit insurance for balances of up to $250,000 per depositor, per insured bank, and for each account ownership category. If there were a problem with a bank being unable to meet its financial obligations, the FDIC would provide coverage to individuals.

No matter which type of account you open, it is essential that you ensure they are NCUA or FDIC insured, and that can provide you with much peace of mind.

Pros and Cons

Establishing a relationship with a bank or credit union to serve your basic banking needs is an important decision. So, it is essential to know the differences between each. Here is a look at some of the pros and cons of either option.

Banks

Pros

• Many banks are bigger and offer more extensive brank networks, providing better access to branch offices and ATMs, including when you travel.
• Convenience, as it is often far easier for you to travel and meet your needs with the ease of access of most banks.
• Typically offer more financial products, including some of the newest and most innovative products as they become available.
• Easy access to financial technology, such as mobile and on-the-go tech.
• FDIC insurance provides up to $250,000 of coverage.

Cons

• Banks tend to charge higher interest rates on loans, which will cost you more in interest over time.
• Interest rates on savings and investment accounts may be lower.
• Higher fees are more common in comparison to other providers.

Credit Unions

Pros

• Lower interest rates and fees on loans.
• Savings interest rates tend to be higher.
• Members may receive dividends if the organization is profitable.
• Customer service and overall community focus are much better than banks.
• NCUA insures accounts for up to $250,000.

Cons

• Typically, fewer branch offices and ATMs are available through credit unions, especially out of state.
• You may need to meet eligibility requirements to join.
• Some credit unions may be less technologically advanced and offer fewer innovative features.
• Available products, while meeting basic needs, may be somewhat limited.

Making the Right Choice for Your Money and Goals

As a consumer, you can select a bank or a credit union based on your needs. Consider both of these options carefully to determine what is most important to the way you manage your finances.

Consumers who want to save the most money and value customer service as the highest priority may wish to find a credit union that they can join. Credit unions are available to many people and for many types of affiliations. Look for those local to you that can meet your specific needs. With their excellent customer service, many are happy to meet with you to discuss the opportunities of joining.

Banks are not a wrong choice, especially for the modern consumer who wants to make payments or deposit checks with their smartphone. Keep in mind that it may cost a bit more to have these benefits.

Take a closer look at the actual businesses available to you locally. Compare their fee structure and overall financial offerings before deciding which one is the best choice for your individual needs. The good news is that most people will find excellent companies available to help you manage your money with ease.