Whether you are looking to open a savings account or need to take out a loan to buy your first home, you will likely consider offers from both banks and credit unions. But what is the difference between banks and credit unions?
While both banks and credit unions offer many similar features, it’s important to understand the difference to decide which is best for you.
Credit Unions are Nonprofit
The biggest difference is that banks operate as for-profit institutions, while credit unions are nonprofit. The profit vs. nonprofit status of these institutions explains the difference between what they are able to offer and who they serve.
Due to their nonprofit nature, credit unions are able to offer lower interest rates to their members. Additionally, a lack of investors and shareholders means that credit unions are able to fully dictate their pricing and competitiveness. With an emphasis on helping the community in which they operate, credit unions aim to make their services affordable and hassle-free for their members.
On the other hand, banks operate as a for-profit business. Since profits are returned to the shareholders, banks are more often focused on making money, leading to higher fees and interest rates than credit unions. Banks may use a portion of their higher profits to invest in things like online banking technology. At a credit union, profits are consistently reinvested back into their product offerings and community.
Membership
Another difference between credit unions and banks has to do with membership status. Banks are often open to any qualifying consumer, while credit unions are only accessible to their members. But becoming a member is not difficult; it usually is limited to where you live or work. For example, at Cornerstone CFCU, anyone who lives, works, worships, volunteers, or goes to school in Niagara or Erie County is eligible to become a member.
Choosing to become a member at a credit union also has its perks. By joining a credit union like Cornerstone, members have access to lower loan rates, lower fees, and a hassle-free and fair loan approval process. Additionally, members at Cornerstone have equal voting power. At a bank, voting is left to the shareholders; shareholders who own more stock have higher voting power.
Because of their engagement in the community, credit unions often place an emphasis on providing exceptional customer service to their members. Since large banks are focused on making a profit, they are often unable to be flexible in what they are offering to their customers.
Are Credit Unions as Safe as Banks?
A common misconception about credit unions is that they are not as secure as banks. This concern stems from the fact that banks are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per account, while credit unions are not.
Since 1970, however, credit unions have had their own form of insurance with the National Credit Union Administration (NCUA). Credit unions that are insured by the NCUA, such as Cornerstone CFCU, receive the same $250,000 insurance per account that the FDIC offers to banks. As long as you join an FDIC-insured bank or NCUA-insured credit union, you are able to feel secure about your account.
Become a Member at Cornerstone Community Federal Credit Union Today
Interested in joining a credit union? Products offered at Cornerstone CFCU are designed to contribute to the overall economic growth of Western New York by empowering our members to meet their financial goals. Additionally, our members can access Shared Branches throughout the country to perform any and all banking transactions. Contact us today to open an account or learn more about what we do.