Banks and credit unions refer to financial institutions that allow you to deposit money for various activities. Once you open a bank or credit union account, you get an account number which is a special entity that distinguishes you from other customers. But what is the difference between banks and credit unions? This article will major on the significant difference between the two kinds of institutions.
It is also essential to know that each bank or credit union has a unique number called a routing number that distinguishes financial institutions from one another. A routing number is usually a 9-digit number that you must include when making a direct deposit to a different bank account. It would be confusing if banks did not have routing numbers since it would be confusing when sending money.
Imagine a general physical address when sending a parcel to a specific person. It can be difficult for the recipient to get the concerned parcel. Another crucial aspect to note is that both banks and credit unions require the same things to open an account, such as a personal identification document, Social Security Number, physical address, email address, and phone number.
How to open a bank or credit union account
You can open a bank account online or at a physical branch, depending on your personal preferences. Online accounts are convenient and are easy to open since you require a phone or a computer to get started. First of all, you have to research the best available bank or credit union regarding fees, minimum deposits, transaction limits, and opening bonuses. Other factors to check include the kind of account you want.
You can have a personal or business account. There are plenty of credit unions for small businesses that you can join to propel your business to the next level. Once you determine the kind of account you want, you can then visit the nearest branch or website to get started.
Next, you enter in the necessary information at the branch and sign or record your biometric information. In most cases, you have to photocopy all your documents and attach them. Opening an account at a branch can take up to an hour due to the movements involved.
Alternatively, you can open your account online by downloading the necessary application to your smartphone or by visiting a bank or credit union website. As I mentioned earlier, an online account application is convenient since you do not waste time when applying.
After opening an account online, the next step is verifying your details. You then receive a confirmation message in your email or phone number that your account is ready for use. You can then deposit money and start using it for the intended purpose.
What is the difference between a bank and a credit union?
There are differences between banks and credit unions. They include the following.
i) Banks have more physical branches while credit unions have fewer
If you are keen, you will find that banks have more branches than credit unions. Furthermore, many credit unions tend to be localized, unlike banks spread over a large geographical region. The reason why banks are many is that banks have more customers as compared to most credit unions.
ii) Banks are profit-oriented, while credit unions aim to uplift the members financially
Bank owners specifically start businesses to make profits. That is why you find many kinds of fees such as monthly maintenance fees, annual fees, transaction fees, late loan payment fees, and high-interest rates on loans.
On the other hand, credit unions have low-interest rates on loans they give to the members. It is also easy to qualify for a loan at a credit union as compared to banks.
iii) Account-holders do not own banks, while account holders at a credit union own the institutions
Once you open an account at a bank, you do not get the authority to be a key decision-maker while you become one at a credit union. Members at a credit union own the institutions and are key decision-makers. That means they run the institutions on their own.
iv) Banks are FDIC insured, while credit unions have insurance from NCUA
When you open a bank account, your funds have insurance from the Federal Deposit Insurance Corporation (FDIC). That means that when the bank collapses, your money is still safe. On the other hand, the National Credit Union Administration (NCUA) insures funds in a credit union.
v) Banks offer various financial products while credit unions are more limited
You can get many services at a bank, such as checking accounts, savings accounts, wealth management, brokerage services, CD accounts, among many other services. Most credit unions are limited to savings and checking accounts.
How are banks similar to credit unions?
Despite the differences, banks and credit unions have several similarities, which include the following.
1) Banks and credit unions require you to create accounts.
You cannot use a bank or credit union services if you do not have an account. You should create an account by presenting all the necessary documents and information as accurately as possible. Furthermore, the two kinds of institutions have similar kinds of accounts. You can open a savings or checking account at either of the institutions.
2) Banks and credit unions issue loans
You can get loans from either institution. Credit unions for personal loans are everywhere, whereby you can get started by depositing the necessary amount of money to qualify after a particular duration. Both banks and credit unions require you to have the necessary credit scores to qualify for a loan.
3) You can open an online account for either institution
Most banks and credit unions allow you to open accounts online. You can either download the concerned applications or use their websites to register. Opening an account online requires you to upload the necessary documents for verification.
4) Both banks and credit unions may be national or localized
It is not a must for a bank to spread nationally. You can have a bank that only operates within a specific duration. The same applies to a credit union whereby they can be national or localized.
5) You can get debit or credit cards in both banks and credit unions
Debit cards are payment cards that allow you to use money in your checking accounts, while credit cards help you to borrow funds from your bank to pay at the end of the month. You can get both types of cards at either your bank or credit union.
6) Credit unions and banks allow you to make a direct deposit
You can use your bank or credit union account to make your direct deposit while transferring money to a different institution other than yours. You can even provide your details to receive money via direct deposit.
How do banks work?
The operation of banks is straightforward. Once you open an account, there are various things you can do at a bank. You can save money for future use in your savings account and earn interest. Most banks do not issue a debit card for a savings account since you cannot withdraw money until a specific time.
When you open a checking account, you can access your money anytime you want, either at your bank’s branch or at an ATM using a debit or credit card. You can also send money to others of the same bank or from a different bank. Furthermore, a checking account helps you to buy goods and services online.
At a bank, you can open a brokerage account and start trading in stocks. Even though not all banks offer such services, most banks allow you to buy and sell stocks. You can also open a CD account and save money for the future. Once you become a good customer of a bank, you can qualify for a loan up to a specific limit. The more credit scores you have, the higher your loan limit.
How do credit unions work?
Credit unions work almost the same as a bank although there are slight differences. You can only join a credit union if you share common interests with other account holders. You might be having the same employer, living in the same vicinity, worshipping at the same place, or having similar kinds of businesses.
As a credit union member, you have to make a certain amount of contribution to your account. You can either open a checking or a savings account. Once you attain the necessary credit scores, you can apply for a loan to develop yourself. Remember I mentioned that credit union interest rates are low as compared to banks and repayments are easy.
Lastly, credit unions offer free financial advice to their members. You, therefore, do not need to hire a financial expert to teach you various financial matters.
Should I join a credit union or open a bank account?
Either of the two kinds of financial institutions is essential. It depends on your motive for opening an account in any of the two. For low-interest loans, you may consider joining a credit union. However, if you plan to open a wealth management account, you may consider a bank account.
Another thing that may help you decide whether to open a credit union or bank account is the convenience of the institution. Credit unions are not well spread like most banks. Above all, credit unions will be suitable to give you free financial services.
Bottom line
Banks and credit unions refer to financial institutions that allow you to make deposits and withdrawals. You can get a checking or savings account in either a credit union or bank account.
Banks are profit-oriented, while credit unions aim to uplift the members financially. Again, credit unions require you to become a member, while a bank account does not require membership. Both kinds of institutions offer loans to members.
