You know you need a bank, but choosing the right one can be confusing. The options seem endless—from the big bank your family has always used, to the one that’s on the block where you live, to the credit union your friend just joined. They all offer slightly different products, services, and experiences, and you're not sure which fits your needs and your finances.
It's always smart to begin by narrowing down your options, and knowing the differences between a bank and a credit union is a great place to start. Once you've wrapped your head around these, your decision may be easier than you think.
Know Your Banking Options
There are many different types of financial institutions to choose from, and they all basically work the same way. The banks you're probably most familiar with are commercial banks (like Citibank, Bank of America, and Chase). These big, publicly traded banks specialize in loan, investment, and deposit services, and they cater to both individuals and businesses. Other types of banks include savings and loans banks (which specialize in real estate financing), and private banks (which are usually owned by one wealthy person and offer investment services for wealthy clients).
Credit unions, on the other hand, are not-for-profit businesses owned and managed entirely by their members. So, when you join a credit union, you're effectively becoming a part owner of the business, and that means you get to benefit from the profits (instead of shareholders). This is why credit unions are generally able to provide lower interest rates on their loans than banks can, as well as higher interest rates on their savings accounts.
What's Important To You?
Before you run off to open an account at your nearest credit union, you should know a few things.
First, unlike a commercial bank, you have to be eligible to join a credit union. Most of them offer exclusive membership based on where you work, where you live, whether or not you’re a student, or other criteria. So, make sure you qualify before you get your hopes up.
Also, credit unions may be slower to implement the latest financial technology (like mobile apps), and they don't always offer the same services you can get from a mainstream bank—like debit cards and full-service online banking. Because banks face pressure from competitors and their own shareholders, they're more likely to keep up with the latest tech trends to maintain their reputation in the marketplace.
What does this mean for you? Well, if you conduct most of your banking online or can't imagine finding the time to actually go visit your financial institution, you'll want to make sure the one you choose can offer you the services you need. You may need to shop around to find the right one for you.
Consider How You'll Use Your Financial Institution
Do you want to set up an automatic savings plan where a fixed amount of your paycheck gets deposited into an investment account? Or would you prefer to periodically deposit money on your own? Some banks and credit unions may offer these services, and others may not. If one of these things is important to you, it's worth finding out before you sign up for an account.
Do you need a branch near your home, school, or workplace? Or are you OK with traveling a bit to do your banking? Some banks and credit unions have multiple branches, and they may be exactly where you need them. Some only have one branch that you'd have to travel to. Again, you’ll want to assess these factors before you choose your financial institution.
When it comes to checking accounts, some banks and credit unions make it difficult to withdraw money without actually visiting a branch. This might not be an issue if you conduct most of your financial transactions online. However, if you need regular access to cash, it makes sense to choose an institution that is convenient to where you live, work, or study. Ideally, you don't want to be in a situation where you have to rely on non-affiliated ATMs to withdraw cash.
Some banks and credit unions will reimburse you for your non-affiliated ATM fees. But if they don't, you could get hit with fees and surcharges that can negate any savings you’ll gain from choosing a low- or no-fee account. You also don't want to be in a situation where you have to take an overnight journey on horseback just to deposit your paycheck or move money into your savings account.
Get The Information You Need
Ultimately, there is no single bank or credit union that is better than the others. They all offer a range of different services and come with their own advantages and disadvantages. It's all about finding the one that best suits your lifestyle.
So, shop around. Most banks and credit unions provide all the information you need on their website (if they don't, that's probably a red flag). If you'd prefer to speak with someone in person, you can always visit your local branch and talk to a customer service representative—just be prepared for a sales pitch!
Whichever way you decide to go about it, it pays to do a little investigative work to find the financial institution that works best for you.