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Are There Advantages to Keeping Your Money With a Credit Union Instead of a Bank?

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In today's difficult economic environment, Americans are beginning to use credit less and to save more. Saving is a good thing - for too long many people have overspent and have been unprepared for life's emergencies. But when deciding where to keep their money, consumers have many choices. Both banks and credit unions offer savings account and checking account services. How do you decide which one is right for you?

The first thing to do is to learn something about each one. Then you can decide which is the better choice.

Banks

Broadly speaking, a bank is a regulated financial institution that provides a wide range of money services to its customers. In the United States there are many different types of banks.

  • Savings bank: Most consumers are familiar with savings banks, which can be local, regional, or national. They provide easily accessible services to a wide range of consumers. Most have a focus on retail banking, including personal savings accounts, checking accounts, and loans.
  • Co-operative bank: A bank that is owned not by stockholders but by its members, who are also customers of the bank. Co-operative banks are often created by persons who have a common bond. Co-operative banks provide their members with the same banking services as savings and loan banks.
  • Mutual bank: Like co-operative banks, mutual banks are owned not by shareholders but by their customers.
  • Commercial bank: Refers to a bank or a division of a bank that mostly provides account services for large businesses and corporations. Owned by shareholders.
  • Community banks: These are locally operated financial institutions whose employees can make local decisions to better serve their customers.
  • Community development banks: These banks specialize in providing financial services and credit to under-served markets or populations.
  • Private banks: These banks manage the assets of wealthy individuals. A private bank may have minimum deposit amount of $100,000.
  • Offshore banks: Located in nations with low taxation and regulation, most offshore banks are similar to private banks.

Banks make money from fees they charge for their services and from interest they make on loans.

Credit unions

Unlike commercial banks, which are business enterprises designed to earn a profit like any other business, credit unions are non-profit membership organizations and are owned by their members. Credit unions are governed by volunteer boards. The first credit union was opened in 1844 by a group of weavers in Rochdale, England. It resembled a modern-day buyer's club. Shares were sold to members with the intention of raising funds to buy goods at wholesale prices. The goods were then sold to members at below retail prices.

Choosing a bank or credit union

Consumers may wonder what the differences are between having a savings or checking account at a credit union and a bank. A key benchmark is interest rates: how much you will earn when you save, and how much you will pay when you borrow. According to the Credit Union National Association (CUNA), rates offered by credit unions are sometimes better than the rates offered by banks. This is because credit unions are not trying to operate at a profit.

Are credit union deposits insured?

Most people know that the Federal Deposit Insurance Corp. (FDIC) insures bank deposits up to $250,000 per depositor per bank. Most credit unions belong to the National Credit Union Share Insurance Fund (NCUSIF), which protects credit union deposits up to $250,000. If you join a credit union, make sure it is a member of NCUSIF.

Joining a credit union

Unlike banks, the law places limits on who can join a credit union. A credit union's "field of membership" is defined by its charter. Eligible people could be employees of a company, members of a church, students at a school, or members of an ethnic group. Chances are good that if you are interested in joining a credit union, you'll be able to find one that will accept you as a member. To find a credit union to join, call the Credit Union National Association at (800) 358-5710.