How are credit unions in South Florida different from banks?
Editor’s note: This blog was originally published on November 9, 2020, and has been updated for accuracy and relevance.
In this blog post, we’ll explore four topics:
Would you rather be a member-owner or customer?
While both credit unions and banks are institutions designed to help with your financial needs, the two actually have a few very notable differences.
WHAT IS A BANK?
Banks are for-profits owned by stockholders or investors. You might be asking yourself what this means if you’re a bank customer. It’s simple: any profits made by a bank are used to pay out dividends to stockholders, which means that you don’t directly benefit from being a bank customer unless you own shares of the company.
WHAT IS A CREDIT UNION?
Credit unions are run in a way that benefits members directly. It all starts with the fact that credit unions are owned by stakeholders, aka, you! In other words, banks are public organizations, while credit unions are not-for-profit.
According to the National Credit Union Administration, there were more than 5,000 credit unions with over 120 million members as of December 2020.
The credit union motto is “People Helping People,” and it’s no wonder because credit union members quite literally borrow money from one another. Think of the way credit unions operate as a closed-loop: members work with other members to save money so that other members can borrow that same money.
Credit union field of membership
Most credit unions require that you live, work, worship, or go to school in a certain area of the credit union, while others require that you also work a certain type of job in order to qualify for membership. Meanwhile, anybody can become a bank customer.
Check out the graphic below. Notice a pattern? The number of credit union members in the United States has grown every year from 2013 to 2020.
Bank stakeholders versus credit union ownership
The private ownership credit unions offer members is a big reason why savings accounts are known as “share accounts” at these not-for-profits. When members take out loans at credit unions, they borrow money from other members. This also explains why members of credit unions are called “members.”
If you have an account at a bank, you’re known as a customer, not a member, because the money borrowed from loans does not come from others that are part of the organization. Banks are therefore funded by investors, just like other public businesses.
How credit unions have better loan and savings rates
Credit unions are traditionally known for having a community-feel and friendly service. They are also known for offering lower rates on loans, making them a great option if you are considering taking out an auto or mortgage loan or even if you want to refinance. Expect lower and fewer fees when you join a credit union.
While banks are known for their convenience, like having more available ATMs and branches nationwide, you’re likely to pay more interest on loans you take from a bank.
Credit unions may be limited to the region, county, or city they’re in. However, credit unions are implementing co-op financial services (ATMs you can easily access with no fees even if you are not a member of that specific credit union), updated mobile apps, and more every day. The co-op shared branch network of certain credit unions has 5,600 branches and 54,000 surcharge-free ATMs that can be used whether you’re a member of that credit union or not.
Due to being for-profit financial institutions, banks find it hard to compete with credit unions when it comes to lower interest rates and fees. You may end up paying more in fees at a bank for errors, such as bounced checks or overdrafts. The same goes for interest rates on loans and savings accounts.
According to the NCUA, which regularly compares the rates for credit unions versus banks, credit unions produced higher interest rates on Certificates of Deposit (CDs), money market, and savings accounts while also posting lower interest rates on home and auto loans during the third quarter of 2021.
Become a MEMBER at Keys FCU!
Keys Federal Credit Union is a community-based credit union that is run democratically in Southern Florida. We offer checking and savings accounts, real estate, personal, and vehicle loans, as well as credit card services to our members. Visit our ‘Member Eligibility’ page to check our field of membership and apply today!
Consider what you want your financial institution to do for you. There’s a credit union for EVERYONE. It’s part of being a financial co-operative.
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