As a credit union with more than nine decades serving Pennsylvanians, we believe strongly in what credit unions can do for members. We put together this primer to illustrate why credit unions are smart alternatives to banks, including the similarities and differences between banks and credit unions, the benefits of credit unions, and the reasons you should consider switching to a credit union.
Credit unions and banks are similar in one important way: both offer their members or customers valuable financial products. These products span a wide range and may include checking and savings accounts, certificates, loan products, credit cards, and access to funds via ATMs or electronically.
One key difference is who owns the institution and benefits from you banking there. Unlike banks, credit unions are member-owned and exist to serve members, not drive profits for a bank owner or stockholders.
One very important similarity is that credit unions take precautions to make sure your money is safe, just like banks do.
Federally insured credit unions – accounting for about 98% of all U.S. credit unions – offer you a safe place to deposit funds, just like a bank does. The National Credit Union Administration (NCUA) Share Insurance Fund insures credit unions and provides the same protections that the Federal Deposit Insurance Corporation (FDIC) provides banks: deposits are insured up to at least $250,000¹ per individual member depositor, per insured credit union, for each account ownership category.
When you look at the structure of a bank, you’ll see that they are for-profit businesses that are held by either private owners or stockholders. Therefore, banks concentrate on earning profits, which are distributed back only to their owners, not their customers. Since owners and stockholders generally want to make the largest profit possible, that profit often may come by skimping on customer service, charging higher interest rates on loans, and/or offering fee-based checking accounts.
In comparison, credit unions are not-for-profit and member-owned. Each member has an ownership stake in the organization, and it works as a financial cooperative. Credit unions generally have two overarching goals:
Credit unions work diligently to serve their members, not themselves. A credit union’s surplus earnings are returned to members, sometimes in the form of higher interest rates on savings accounts, discounted rates on loans, or additional banking services. Some credit unions also provide benefits such as free financial wellness resources, discounts on other products or services, and/or college scholarships.
As financial cooperatives, credit unions follow Cooperative Principles. As defined by the National Credit Union Foundation, these include:
Frequently misunderstood as exclusive – and perhaps elusive – organizations, it should now be clear that credit unions are very accessible. Modern credit unions provide an impressive array of services and offer many benefits. If you’re wondering whether credit unions are better than banks for your financial situation, this list of benefits may help you decide.
Personalized Service
Do you want to feel like more than a number? Since credit unions exist to serve their members, credit unions typically offer more personalized attention.
It’s hard to put a price on developing a working relationship with a trusted financial institution and customizable service is something that big-name banks can’t always offer.
Member-Owned
One of the main benefits of credit union membership is that credit unions are member-owned. The goal of a credit union is to provide financial services at a reasonable cost – not to nickel-and-dime members with excessive fees.
As a result, they have the flexibility to decide how much they want to charge for their products and services. And management is dedicated to reinvesting revenues into services for members and minimizing members’ costs. That can add up to big savings for members.
Competitive Rates Across Product Lines
Need a little more bang for your buck? Credit unions may provide just what you’re looking for. Because credit unions are not-for-profit organizations, they pass their financial benefits on to their members. In contrast, banks need to turn a profit for owners, so they’re less likely to provide financial incentives to customers.
Credit unions offer the same financial products as banks including mortgages, personal loans, car loans, and credit cards. But at credit unions, you’ll find comparatively lower rates.
When you’re paying interest on an auto loan for 60 months or a mortgage for 30 years, getting the lowest possible interest rate makes a significant impact on monthly payments and the overall interest you pay. This makes credit unions an appealing choice for loans and lines of credit.
So, if you’re in the market for a loan, or simply want your money to work harder for you, check out the competitive rates at a credit union.
Lower Fees
Another major benefit of credit union membership is lower fees. With a plethora of accounts requiring no minimum balance and the absence of monthly service fees, you can recognize significant savings over the course of a year when you choose a credit union.
If you find a bank offering free checking, is it really free? Or are there numerous “fine print” qualifications? Are you restricted on the number of ATM withdrawals you can make per month? Can you write only a certain number of checks monthly before you’re obligated to pay a fee? Are you required to have direct deposit set up?
Credit unions offer several account options, often with fewer restrictions, obligations, and complications.
Unexpected Perks
The benefits credit unions offer aren’t just financial. Other nontraditional perks that credit unions may offer include:
Opened in 1934, PSECU was founded by 22 ordinary people who pooled $90 and made an extraordinary commitment to each other: To create a financial institution where collective resources benefit all members. Today, PSECU continues that legacy as Pennsylvania’s digital-first credit union, with over $8.8 billion in assets, an economic impact of over $790 million, more than 595,000 members, and a convenient anytime, anywhere banking model.
We also offer scholarships to members graduating from high school, a wide variety of lending products, and opportunities to earn cash rewards. With our Founder’s Card, you can earn 2%2 or 1.5% cash rewards on every purchase, every time. And with our debit card rewards, you can earn $.05 or $.10 on eligible purchases3 when you pay with your PSECU debit card.
At PSECU, our Members Achieve More. We’re committed to giving back to our community and helping you achieve your financial goals. It’s what makes us different. We work as your trusted financial partner to make smart decisions that help your money work harder and smarter for you.