What Is a Credit Union?
A credit union is a not-for-profit financial institution owned by members with common economic interests. For example, teachers may decide to form a credit union full of teacher-friendly investments, or people from a common location may decide to form their own credit union to borrow and lend money locally. Credit unions are set up as nonprofit entities, meant to provide affordable financial services to their members.
What’s the Difference Between Banks and Credit Unions?
Credit unions and banks may seem similar because they both accept deposits and lend money, but they are different in many ways. Typically, traditional banks don’t offer interest rates that are better than credit unions, and in most cases, only online banks have rates that are comparable to those offered by credit unions.
Loan Rates
As a business owner, it’s crucial to know the variety of ways you can acquire loans to grow your business, as well as the amount you’re likely to be charged in interest over the lifetime of those loans. Identify lenders that charge the lowest interest rates on loans and lines of credit. Traditional banks often charge rates that are a point or two higher compared to what’s charged by credit unions. Thus, getting a mortgage or business loan from a credit union is generally the cheaper route.
Transaction Fees
This is another significant difference between credit unions and banks. Credit unions, because they are community oriented, tend to charge a smaller amount of fees on different transactions as compared to banks. Many credit unions do not have a minimum required balance on checking accounts. Moreover, they do not charge a monthly account servicing charge. This can save your business hundreds of dollars per year. Additionally, most transactions such as checks, withdrawals, and electronic transactions are also free of charge.
Flexibility
Many people who have dealt with both banks and credit unions might tell you that credit unions are easier to deal with compared to traditional banks. On the other hand, banks have many branches and have a large number of customers. The probability of a bank declining your loan application due to a low credit rating is very high. After all, losing one customer is not an issue to them. If you’re a member of a credit union, your application may go through even if you do not meet all the requirements.
Technological Advancement
Consumers may feel that technology at credit unions may be as advanced as those employed big banks. Since credit unions are smaller in size and often have fewer members compared to banks, they can lack web-based features such as online check deposit or budget notifications. Credit unions that have an online presence may only allow customers to do simple transactions, such as transferring funds and checking recent account activity, but little else. With traditional banks, the online interfaces can allow you to see recent activity, transfer funds to another account, apply for credit cards, apply for loans, and even pay bills.
Product Offerings
Credit unions offer fewer financial products in comparison to banks. Traditional banks have a variety of checking accounts, distinct types of loans, different credit cards, and even a wide range of mortgage loans to choose from. Credit union members are limited to only specific financial products that the credit union specializes in. This may be a big limitation for a large business but perhaps not much of an issue with small to mid-size businesses.
Access to Physical Locations
Unlike banks that have physical branches nation wide, credit unions only operate from a few locations. This means that if a member relocates to a different city, it could prove more difficult to make transactions. Furthermore, the limited online presence of most credit unions can require members to be near a physical branch to perform many common transactions. This is changing as more credit unions are adapting to the online needs of their clientele.
The Bottom Line
When choosing where to bank your business, take the time to review the pros and cons of each institution at your disposal, and decide which will best serve the needs of your business. There are no rules against using both.
