Banks and credit unions: Which Shall I Use?
- 1. Banks and Credit Unions: Which Shall I Use? By Todd A. Mulligan Banks and credit unions are not as different as one would think. Both are financial institutions with long histories of providing many services to consumers. History, ownership, and purpose are some areas of difference. The first bank, Monte dei Paschi di Siena, was established in Italy in 1472 and is still in existence today. Grand Duke Ferdinando ll gave depositors of Monte the income of state-owned pastures of Maremma, part of southwest Tuscany. German farmers in the late 1840’s were hurt by famine and poor crops. They united to run a mill and bakery. Their concept of cooperatives planted the seed of helping provide credit to other farmers. Credit unions became more popular in the 1920’s in the U.S. because banks were not offering credit to the public. Banks are owned by investors and are for-profit organizations. Their main purpose is to increase the wealth of the shareholders. Most banks are open to all customers. Credit unions are owned by their members and are not driven by profit. Membership is open to those that have an affiliation with a company, profession, school, government, or community. Every member is an equal member and has one vote no matter how much is invested. These are referred to as natural-person credit unions. One can become a member by depositing as little as $ 10.00. Any profit that is made is invested back into the credit union or paid out to members as dividends. There are also private banks. These organizations are owned by an individual or group, are not incorporated, and generally specialize in financial services for the extremely
- 2. wealthy. Like banks, credit unions also have an additional type. Corporate credit unions are larger and help support the smaller institutions. Both offer the same services such as saving, checking, CDs, loans, credit cards, and other services. The costs for these services can and do vary greatly due to the fact that banks pay state and federal taxes whereas credit unions do not. Credit unions generally have better rates for loans and credit card interest, no annual fee for credit cards, and free checking. Banks are infamous for requiring minimum balances and direct deposits to eliminate fees per month. Both are insured to protect accounts. Credit unions have the backing of the National Credit Union Share Insurance Fund (NCUSIF). Banks are insured by the Federal Deposit Insurance Corporation (FDIC). One is not better than the other. It all comes down to personal preference and convenience. Banks usually have more locations and ATMs. This is important for those who travel. Credit unions tend to be smaller and evoke a more personalized experience. Having accounts at both institutions will help you determine whether one or both will help to meet your needs. SOURCES: Mint.com Money.howstuffworks.com NECU.org Wikipedia