Have you ever wondered what the real difference is between banks and credit unions? On the surface, banks and credit unions appear rather similar – they both offer many of the same products and services including branches, ATMs, online banking and more. So, what makes them so different, and which should you choose for your financial needs?
Members vs Shareholders
A bank is a for-profit entity owned by shareholders. Banks have a fiduciary responsibility to make a profit from their customers in order to increase value for their shareholders. As a result, banks may at times prioritize the needs of their shareholders over the needs of their customers.
By contrast, a credit union is a not-for-profit institution owned by its members. Credit unions have a responsibility to increase value for their members by reinvesting profits into better products and services and lower rates and fees. The members of a credit union enjoy many of the same benefits of shareholders including the ability to vote for the credit union’s board of directors. This member-owner model ensures that credit unions prioritize the needs of their members above all else.
At Vermont Federal Credit Union becoming a member is as easy as opening an account online or at a branch. Membership is open to all those who live, work, worship, or attend school in any one of nine counties in northern Vermont.
Lower Fees than Traditional Banks
Some banks have a poor reputation for charging “hidden fees” such as monthly maintenance fees, minimum balance fees, transfer fees, loan origination fees, overdraft fees, etc. In contrast, because credit unions are member-owned, many have adopted lower fees than traditional banks and in some cases have eliminated fees to benefit their members. A great example of this is Vermont Federal’s Reward Checking account, which features no monthly maintenance fees, no minimum balance requirements, and rebates accountholders up to $25 per month for ATM fees.
Better Interest Rates than Banks
Interest rates are another area where banks and credit unions often differ. One of the advantages of the not-for-profit model is that members of a credit union tend to enjoy higher interest rates on deposits and lower interest rates on loans. A study by the Credit Union National Association found that financing a vehicle with a Vermont credit union saved members on average $86 per year in interest expense compared to a comparable loan with a banking institution in the state. These savings can add up quickly especially when members choose to use more than one product or service offered by a credit union.
Involved in the Community
The credit union movement was founded on the philosophy of “people helping people,” and many credit unions have a deep connection to the communities that they serve. While banks may also engage in philanthropy and charitable giving, many credit unions operate on the principle that improving the communities in which they live and work will ultimately enrich the lives of their members.
Offers Many of the Same Products and Services of Banks
It’s a common misconception that banks offer the most products and services. Many credit unions offer a full-suite of financial services suited to meet the financial needs of their members. The products and features that consumers expect – such as mortgages, credit cards, mobile banking, overdraft protection, and ATM access – are standard offerings at many credit unions.
Your Funds Are Still Federally Insured
Both banks and credit unions are insured by federal government agencies. The deposits held at a bank are federally insured by the FDIC, while the deposits held at a credit union are federally insured by the NCUA. Both agencies offer similar protections to ensure that your money is safe and available.
Which is the Right Choice for you?
Choosing the right partner for your financial wellbeing is an important decision. Now that you know the differences between banks and credit unions, you’re ready to make a sound choice.
Are you ready to enjoy the many benefits of a credit union? Join today, and become a member-owner of one of Vermont’s most trusted credit unions – Vermont Federal Credit Union!