Harris-Courage & Grady, PLLC
Choosing a Bank or A Credit Union
When you’re choosing a place to keep your money, you have many options.
Is it better to choose a bank or a credit union? That depends on your situation and your needs. Banks and credit unions each have advantages and disadvantages.
Advantages of Credit Unions:
- Credit unions are not-for-profit. While banks exist to earn as much money as possible, credit unions exist to provide a service to their members. Excess income can be used to provide lower fees and lower interest rates on loans, which is a big advantage for you!
- Credit unions pay higher interest rates on deposits. Sometimes they pay as much as 10 times more than banks do. It’s worth comparing interest rates between institutions when you’re considering a new account.
Disadvantages of Credit Unions:
- Credit unions can be harder to join. Some unions only service a particular population, such as teachers or employees of a particular company. There are credit unions open to the general population, but they’re less common. It might require a little work to find a local credit union that will accept you as a member.
- Credit unions are geographically limited. That means if you travel out of town, you are less likely to have access to a branch of your credit union.
- Credit unions keep “cross collateral liens.” This is a disadvantage when filing bankruptcy. If your car loan is with a credit union and you also have another loan with the credit union, the second loan is also secured by the car. If you don’t pay the “unsecured” loan, the credit union can take your car even if you are current on your car loan.
Advantages of Banks:
- Banks offer more options. A bank often has many more options available than a credit union and can potentially satisfy your need better.
- Banks typically have better online services. Banks’ larger budgets can afford to keep their technology up to date and they often offer a better online banking experience.
- Banks have more locations. Many banks have branches all over the country. It can be nice to have access to a branch of your bank wherever you are, especially if you travel frequently.
Disadvantages of Banks:
- Banks charge higher interest on credit cards and other loan products. Even a difference of 1-2% can be significant when dealing with a large loan over many years.
- Banks offer lower interest rates on deposits. Your money grows more slowly at a bank than it would at a credit union.
- Banks spend much more on advertising. Many banking customers are slow to switch to credit unions because of the tremendous advertising reach of big banks. Keep in mind that the banking customers are ultimately paying for those advertising costs.
Banks offer more locations, more ATMs, more products, and a higher level of technology. Credit unions pay more interest on deposits, charge less interest on loans, and charge lower fees. Which is more important to you?
By answering that question, you’ll find the right institution for your situation. Remember, you’re not limited to just one or the other. You might be able to have the best of both worlds by having an account with both a bank and a credit union.