Choosing Your Financial Institution


financial institution infographic

Let’s start with the basics

As you contemplate moving beyond your piggy bank, the two types of financial institutions that you’re most likely to deal with are banks and credit unions. They offer essentially the same products and services, including savings and checking accounts, credit cards, auto loans, mortgages and investment products, but their values and motivations are very different. 

Credit Union

  • Member-owned financial co-operative
  • Not for profit—excess earnings are distributed to credit union members 
  • in the form of profit-sharing, lower loan rates or higher yields on savings
  • Run by a volunteer board of directors who are elected by fellow credit union members
  • Members can vote on how their credit union is run
  • Membership eligibility requirements vary; make sure you check with your local credit union

Bank

  • Shareholder-owned financial institution—not owned by bank customers
  • For profit—profits not shared with bank customers
  • Run by paid board of directors, not necessarily bank customers
  • Customers have no say in how their bank is run
  • Open eligibility; anyone can be a customer

Piggy Bank

  • Owned by you
  • No costs, earnings or profits
  • Limited features and security
  • Susceptible to dust and breakage


Think about your access

Access to money while traveling

Bank: The big banks have ATMs in most major cities. This will give you free access to your money nationwide. However, if you need to use another financial institution or convenience store ATM, get ready to pay a higher service charge.

Credit Union: Unlike national banks that have ATMs across the country, credit unions are typically community based, with far fewer locations. However, they often belong to ATM networks that allow you to use other credit union or convenience store ATMs free of charge.

Largest surcharge-free ATM network

Bank: 16,000, Bank of America

Credit Union: 30,000, CO-OP ATM Network

Is there an app for that?

Bank: Banks, especially the larger ones, typically offer great technology. Banking apps will support your love for on-demand banking on your smartphone.

Credit Union: You may not think that credit unions provide the latest technology; however, most have caught on and provide mobile apps that are comparable to the apps from the banks.

Think about your money

Credit unions have lower fees

On average, the largest credit unions have lower fees than the largest banks.

Average online monthly bill payment fee

  • Bank: $6.95
  • Credit Union: $0

Average fee to use another financial institution’s ATM

  • Bank: $2.21
  • Credit Union: $1.07

Average overdraft fee

  • Bank: $34.48
  • Credit Union: $27.82

Credit unions offer higher yields on savings

The average credit union account accrues 35% higher interest than a bank account of the same type.

Banks and credit unions are equally safe

The National Credit Union Administration (NCUA) protects the money you have in a federally insured credit union up to $250,000. This is the same protection offered by the Federal Deposit Insurance Corporation (FDIC) for the money you might have in a bank account.

Think about your satisfaction

When customers weigh in, credit unions win. Banks fell short of credit unions in the American Customer Satisfaction Index in 2017. 

  • National Banks: 77
  • Credit Unions: 82

The lowest-scoring financial institution is also one of the largest: Wells Fargo, with a score of 74.

Sources: American Customer Satisfaction Index, American Bankers Association, Consumer Reports, Credit Union National Association, Datatrac, Forbes, University of Wisconsin Center for Cooperatives, U.S. News & World Report and Wise Bread


What was the very first financial choice you ever made?

Think about it: it likely took place before your first job, even as far back as when your annual income consisted of Tooth Fairy money and lucky pennies. The very first financial decision you ever made is also one of the most important choices—it’s where to keep your money.

When you first made that decision, piggy banks, sock drawers and buried-in-the-sandbox-like-pirate-treasure all seemed like perfectly acceptable options. As it turns out, they aren’t nearly as super-secret as you might have hoped. Opening a bank account is the best solution, but in order to do that, you first need to choose a financial institution—so, your choice is between a bank and a credit union.

Banks and credit unions offer essentially the same products and services, but there are huge differences in the way they operate. Despite this, many people put more thought into building their Netflix queue than they do choosing their financial institution. It’s a Money Thing is here to help fill in the gaps and show you how the differences can affect your dollars. Whether you’re just starting out or rethinking your current financial setup, here is what you need to know.

The main difference between banks and credit unions is in their structure. Banks are for profit, while credit unions are member-owned and -operated. This means that banks have numerous expenses that credit unions simply don’t have. Banks have to pay their shareholders, their private investors and even their board of directors (credit union boards are typically volunteers elected by credit union members)—and all this is in addition to regular operating costs. Banks are set up in a way that allows a select group of people to make money off of your banking activity.

Credit unions, on the other hand, are set up in a way that allows all of their members to benefit from their profits. Once the operating costs are covered and reserves are set aside, the profits are distributed back to members in the form of free banking products, lower interest rates on loans and higher interest rates on savings accounts. Credit unions in the United States are also exempt from federal and state income taxes, which translates to even more profit that comes back to members. 

Credit unions sound pretty great, right? You might be wondering why some people choose banks over credit unions, even though credit unions consistently outperform banks when it comes to deposit and loan rates and customer service. 

The simple answer is that banks are bigger, and some people believe bigger is better. A more effective approach would be to figure out your banking priorities. Here are some factors to consider:

1) Am I eligible for an account? Banks are open to anyone. Credit unions have membership requirements, but don’t let that intimidate you! Requirements can be as simple as living in a certain community or working in a certain field.

2) How much does it cost to get set up? Are there any fees associated with opening an account? Is there a minimum balance required? Joining a credit union involves purchasing a share (they’re usually $5), but this is different from a fee—it means you’re a member-owner of the credit union.

3) Will I have good access to ATMs? You might feel as though you see larger bank ATMs everywhere, but credit union ATMs are just as accessible. In fact, the largest credit union ATM network is actually larger than the largest bank ATM network. Find out which other financial institutions share your local credit union’s network—free ATM transactions are not limited to machines with a particular credit union name on them.

4) What can I do online? More and more financial institutions are offering online banking services. Find out what you can do from your computer and smartphone. Can you check your balance? Schedule payments? Transfer money between accounts? Taking advantage of online products can be super-convenient, and can avoid a trip to the ATM or the nearest branch.

5) And speaking of the nearest branch, where is it? Find out what the hours of operation are and how they work with your schedule. Find out if you can bank through other branches, too. This could come in handy if there’s a location close to work or school. 

6) What can my financial institution do for me? Ask about products that are tailored to your situation. How do the interest rates compare to other financial institutions? Are there free products you’re eligible for? Don’t settle for a financial institution just because you need an account—you should also want to have an account there.

At the end of the day, choosing a financial institution is a personal decision with a huge influence on how you manage your money and your time. If you make the effort to ask questions and compare services, you’ll find the best home for your finances.