Whether you’re considering switching banks or getting ready to open your first account, you probably have questions about your best options for managing your money. That’s natural – and it’s important to get the answers you need.
At Addition Financial, one of the most common questions we hear from potential members is this:
That’s a good question to ask because a lot of people don’t really understand the differences between banks and credit unions. So, let’s talk about the answer – and some other information that will help you understand how credit unions work.
What is a Credit Union?
It’s always a good idea to begin with the basics. What is a credit union?
A credit union is a financial institution that operates on a not-for-profit basis. That puts credit unions in direct opposition to banks. Banks are for-profit corporations that are governed by officers and a board of directors, who ultimately answer to shareholders.
Credit unions do not have shareholders. In fact, they’re owned by their members. People who have accounts at credit unions aren’t just customers – they’re part owners of the credit union itself.
That’s a difference that’s obvious in the way credit unions do business. Because they’re driven by profits, banks often charge high fees and interest rates. They provide minimal services and ultimately, their first concern is making money for their shareholders.
By contrast, credit unions are there to service their members. They often have lower fees and lower interest rates than banks do. They also work closely with their members to help them achieve their financial goals. They’re often willing to help members establish or rebuild their credit.
What Are the Differences Between Federal and State Credit Unions?
Under our old name of CFE, Addition Financial was a federally chartered credit union. When we adopted our new name, we also switched from a federal charter to a state charter. But what does that mean for the way we do business and for our members?
The primary difference is that federally chartered credit unions must adhere to federal guidelines on interest rates. There are maximum limits imposed on credit unions with a federal charter. The guidelines vary from state to state, so there may be some fluctuation in state chartered credit unions.
Another key difference is that in many cases, there’s more rigorous oversight of state chartered credit unions than for federal chartered credit unions. That’s because in-state regulators are often more familiar with the credit unions they oversee. They’re also able to visit more frequently, and more likely to hear of problems as they arise.
The most important thing for our members to know is that there will be very few signs – if any – that we’ve changed our charter. All member deposits are still insured by the National Credit Union Association up to a maximum of $250,000.
What is the NCUA?
The National Credit Union Association, or NCUA, is an independent federal agency charged with supervising and insuring most of the credit unions in the United States. All told, it regulates more than 98% of all US credit unions, including all federally chartered credit unions and most state chartered credit unions.
The NCUA works in tandem with the National Credit Union Share Insurance Fund or NCUSIF, which insures all credit union deposits. No credit union may revoke their insurance unless the NCUA ends the membership.
You should know that the NCUSIF is backed by the US government and no federally insured credit union members have lost any insured savings since its inception.
What Are the Key Differences Between Credit Unions and Banks?
Credit unions and banks are all financial institutions, but there are some key differences you should know about:
Credit unions are not-for profit organizations. They’re owned by members and answer only to members. By contrast, banks are for-profit corporations that answer to shareholders and are primarily driven by profit.
Credit unions are usually more willing than banks to work with members to help them establish their credit, rebuild their credit and achieve their financial goals. They’re community organizations and they place a lot of importance on providing assistance and guidance to their members.
The fees and interest rates at credit unions are often more favorable than those at banks. The rates are usually set with the members’ best interests in mind and it may be less expensive to bank with a credit union.
In other words, doing business with a credit union is like being in a partnership. They’ll work with you to help you manage your finances and secure your future.
Understanding what a credit union is and how it works is essential if you’re thinking about opening a new account or switching from your current bank.
Click here to learn more about Additional Financial’s savings accounts for members.