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Commercial Banks vs. Credit Unions

Updated: Aug 27, 2021

A credit union is a financial cooperative, owned by the members who have deposits at the bank. Credit Unions are not-for-profit enterprises that enjoy tax-exempt status, and is created for the benefit of its members. All depositors are owners, regardless of balance, and get a vote in board member elections. All member are treated as shareholders.


A commercial bank is a for-profit institution, often times traded on the stock market. They are owned by shareholders (not necessarily account holders) and look to turn a profit for those shareholders. A depositor is merely that, someone who deposits their money at the bank. The bank's goal is to earn as much of a return as possible from the depositor. Examples: Bank of America, Chase, Wells Fargo, TD Bank.



A depositor is a shareholder at a credit union. A depositor is not a shareholder at a commercial bank, the folks who own shares of stock are the shareholders.


Here Are some of the key differences between both institutions:


Eligibility Requirements

Both institutions will have a credit score or credit worthiness standard. Both have the ability to turn you down for being in the Chex System and having a below average credit score. Both will use your ID and social security number to verify your identity.


Credit unions differ from commercial banks because they have to limit their membership to the community they serve as they are a not-for-profit. It could be limited by profession like teachers of a certain county, or servers of the military as with Navy Federal. Or they can be area based serving the county, multiple counties, or cities where the Credit Union is located.


Geographic Locations

Credit unions generally have a much smaller geographic footprint. Some credit unions don't have as many branches as others. Remember, they are community or demographically based as a not -for -profit. BUT!... Because of this, many credit unions have joined partnering networks that allows members to conduct transactions with credit unions and ATMs in their networking affiliation with no additional fees. You will normally find the directory on the website of the credit union.


Commercial Banks have more flexibility with operations as they are for - profit institutions. Wells Fargo has over six thousand branches. Bank of America has over five thousand. Online-only banks that do not have physical branches, like Ally Bank, have partnered with large ATM networks like Allpoint (55,000 ATMs) and they offer ATM fee reimbursements. Ally Bank will also reimburse up to $10 at the end of each statement cycle for ATM fees.


Insurance

Both are protected by deposit insurance but by two different organizations.

Credit unions are federally insured up to $250,000 by the National Credit Union Administration (NCUA). Commercial banks are federally insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). Both NCUA and FDIC are backed by the full faith and credit of the United States Government.


You can confirm the institution's coverage by checking with the NCUA Lookup tool or the FDIC BankFind tool. For all practical purposes, NCUA and FDIC coverage is the same.


Interest Rates

Since the credit union is owned by the depositors, they tend to pay higher interest rates on deposits and charge lower interest rates on loans compared brick and mortar commercial banks with brick and mortar credit unions. When you introduce online banks into the comparison, high yield savings accounts will have higher rates than both. This is true also for money market accounts. Commercial Banks has a working relations with the FED to help determine interest rates among other things. Credit Unions are not regulated by the FED. Not all banks are bad, just like all credit unions aren't good. Community Banks are another way to go. They have the feel of a credit union and are very small business friendly. Credit Unions, Community Banks, and lenders like PayPal were the quickest to process the SBA loans for small businesses. Centennial Bank is a well known Community bank that may be worth looking into. And then there are online banks, which are also an option.


At the end of the day

You have to conduct your own research and determine which institution better suits your needs. Determine your financial goals, compare services and interests rates, and compare relationship benefits.

Happy Banking!

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