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The Difference Between a Credit Union and a Bank

Posted on March 26, 2015

Banks
A bank is a for-profit business and that operates for the purpose of generating profit for their stockholders. When you deposit money into a bank account, you are essentially loaning the bank your money. The bank then loans that money to other customers and earns income by charging interest on those loans. Even though it also pays you interest on some accounts, it charges much more than it pays out. It's worth keeping in mind that, at the end of the day, a bank is a business, and their priority is profit.

Credit Unions
That credit unions are not-for-profit, is the biggest factor that distinguishes them from banks. Credit unions are typically not open to the public. Rather, people who wish to join must belong to a certain trade organization, live in a specific geographic area, or meet some other type of qualification for membership. Credit unions are owned jointly by their members, not by investors. The terminology is also quite different, starting with calling someone who has an account there a member instead of a customer. Another linguistic difference is using the term "share draft" instead of checking account.

Benefits of Banks
Banks tend to operate in a large network and therefore have multiple branch locations across the country. This certainly makes it easier to access your cash when you travel. Since banks are larger, they are often faster to introduce new services. Two prime examples from the last several years include the introduction of mobile check depositing and online bill paying services. 

Benefits of Credit Unions
One of the major advantages of credit unions is that interest rates on loans are typically lower, while interest paid to members is usually higher. With a credit union, any profit the organization earns is returned to its members. Because credit unions operate with reduced overhead, members enjoy lower fees for services. Most basic credit union services, such as share draft accounts, are free to all members. Some credit union members say they chose this type of banking because they receive service that is more personal. Credit union members enjoy the small-town feel when the staff gets to know them by name.

What Is Most Important to You?
Everyone has different needs when it comes to banking. If it's convenience you're after, a bank is probably a better fit. If you're more interested in building a relationship with the people who manage your money, perhaps you need to join a credit union. You can always re-evaluate your choice later if your financial needs change.

About NAE Federal Credit Union
NAE Federal Credit Union is a not for profit, member owned, full service credit union in Hampton Roads. We know that there are many choices in the financial community, and we would like to be your first choice. At NAE we strive to be “Your Financial Shelter” by offering savings, checking, credit cards, loans, mortgages, financial counseling, and retirement services. When you become a member of NAEFCU, you become an owner with the ability to help decide the direction of NAE. Every member matters. We encourage our members to become involved, to ask questions and to take advantage of our many products and services. Our sincere desire is to help you, the member, with your continuing financial success and to be “Your Financial Shelter”. Read more about us here.

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