How to Choose Between Credit Unions and Banks

When opening savings and checking accounts, you have a choice between starting an account at a traditional bank with many branches all over the country, or going with a smaller financial institution called a credit union. Banks and credit unions have their advantages and disadvantages.

If you are opening a savings and checking account for the first time, here is a guide to help you choose.

Difficulty: Moderate

Instructions

1. First, understand some of the restrictions on becoming a member of a credit union. Banks will let anyone open an account with a minimum deposit, but not so with credit unions. Credit unions are chartered by and for specific groups of people, and they restrict membership only to people who are part of that group.
   
   For example, some credit unions serve only teachers, health care workers, students/alumni/employees of a certain university, or residents of a particular state county. There may be many credit unions where you cannot open an account.

2. Also understand that the main benefit of credit unions is that they offer higher interest rates on savings accounts, and low interest rates on loans. Credit unions are more frugal than banks, and keeping their overhead low means they can offer better rates to the account holders.

3. Next, assess your need for nation-wide access to your account. If you do a lot of traveling, you will find it more convenient to have a checking account with a large bank that has many branches all over the country. If you open a checking account with a credit union, you can use the ATM card anywhere, but you will likely pay fees.

4. Assess your savings needs. If you put most of your paycheck into checking with little to save, then it won't matter if you go with a bank or credit union.
   
   If you do have a lot of money in savings, apply to credit unions since they have higher yield savings options than banks do.

5. Look at loan offers from credit unions versus banks. One advantage of credit unions is that they can offer their members lower interest rates, however, they often won't loan as much as a big bank will. Banks will lend you a larger sum, but the rate will probably be higher. Think about your future needs for car loans and mortgages.

6. If you do join a credit union, read the fine print on your membership contract. For example, if you join a credit union associated to a university, you could lose benefits if you leave the school before graduating, or quit your job there.

7. Where ever you open a checking or savings account, create a financial plan so that you can reach your goals.

[copperhill]

on 6/8/2009 We love the more personal relationship we have developed with our credit union. Thanks for giving tips on how to consider what will work for each individual consumer.