Whether you need to open a new checking account or get a car loan, you’ve probably looked at different financial institutions in your area and found you have a lot of choices. Beyond large national banks, you probably also found local community banks and credit unions that can provide useful financial services.
But what exactly is the difference between a community bank vs a credit union? What are the pros and cons of each, and which should you choose? Let’s take a look.
What Are the Similarities Between a Community Bank vs a Credit Union?
Community banks and credit unions have quite a bit in common, from the services they offer to the way you interact with them and access your money. Whether you choose one or the other, you’ll find they both offer some of the following benefits.
Basic Financial Offerings
If you’re just looking for the basics, chances are you’ll find the financial services you need at either a community bank or a credit union. Most credit unions and community banks will offer savings and checking accounts, basic investments such as certificates of deposit (CDs) and bonds, as well as mortgage, auto, and other large loans.
The way you perform basic day-to-day activities like making deposits and withdrawing cash will be similar at both types of financial institutions.
Community banks and credit unions will typically have at least one local branch for you to visit for in-person banking. Here, you might use the ATM for your transactions, or you may work directly with a teller who can help you manage your account. Both banks and credit unions will typically be open during business hours and closed except for the ATM during the evenings.
In the early days of apps and high-speed internet, only the largest national banks were able to offer online services. But now, many credit unions and community banks have useful online portals and apps you can use to perform a variety of banking functions on-the-go or from the comfort of your home. Features like mobile deposits and checking your account balance online are now available at even some of the smallest credit unions and community banks.
What Are the Differences Between a Community Bank vs a Credit Union?
While community banks and credit unions have a lot in common, they also have a few key differences. These differences will help you decide which type of financial institution is right for you.
For-Profit vs Non-Profit
Whereas a traditional bank tries to earn a profit from your account to share with its owners, credit unions are member-owned and not-for-profit. For-profit isn’t necessarily a bad thing—community banks may compete by offering more services or better experiences. But they also need to earn a profit for their investors, which leads us to the next difference between community banks vs credit unions: interest rates and fees.
Interest Rates and Fees
While traditional banks and credit unions both work hard to satisfy their customers, credit unions don’t need to generate a profit to share with investors. This means they can often afford to offer you more attractive interest rates and fees on loans and other financial services.
Qualifying for an Account
Credit unions may offer lower fees and better interest rates, but there’s a catch—you have to qualify for an account. Credit unions are created to serve a specific community. This may be the city or region where you live, or it may be an interest-based community, like a teachers’ credit union. If you’re not a part of the community the credit union is set up to serve, you won’t be able to create an account.
In contrast, community banks—such as Bankers Trust, First Financial Bank, and Union Bank, to name a few—will serve anyone in the regions where they operate, so getting an account can be easier.
Another difference between community banks vs credit unions is the variety of services offered. Community banks often have more services available than credit unions. For example, your local credit union may offer only basic checking, savings, and loans, but your community bank may also offer business accounts and additional investment options.
Every financial institution is different, so you’ll want to consider which services you’ll need, and then find out if the community banks and credit unions in your area offer those services.
Safety of Your Money
Whether you join a credit union or a community bank, your deposits will be safe. However, these two types of financial institutions handle insuring your deposits differently. Money saved in banks is insured by the federal government through a program called FDIC (Federal Deposit Insurance Corporation). If the bank goes out of business or if some other disaster occurs, you’re guaranteed to get your money back, up to $250,000.
Credit unions are not covered by FDIC insurance, but most are members of NCUA (National Credit Union Administration), which offers similar insurance for deposits. If you’re choosing to go with a credit union, you’ll want to double-check that they participate in NCUA so that you can rest well knowing your money is safe.
Should I Choose a Community Bank or a Credit Union?
With a wide range of similarities and differences, you will probably be able to find both community bank and credit union options in your community that meet your needs. Both offer basic financial services, and will have branches in your area where you can get the help you need.
Here are a few pointers when choosing whether a community bank vs credit union is best for you:
- Pay attention to fees and interest rates on the services you’ll use. For example, if the local community bank charges $5 a month for low checking account balances, you might prefer to go with a local credit union that doesn’t have any fees.
- Make sure the financial institution you choose has the services you’ll need. For example, if you have a home purchase coming up, you may want to pick a community bank or credit union based on which one offers mortgages with competitive interest rates.
- Make sure you choose a financial institution where deposits are insured. Any bank you are considering will be insured by FDIC. When considering a credit union, double check that they are insured by NCUA.
Whether you go with a credit union or a community bank, choosing a financial institution that can handle all of your money needs while offering competitive fees and friendly service will make your money management so much easier.