Credit unions or banks: which is better for you?

If your money has been with the same financial institution for a while, now is a good time to see if there is a better option.

A Bank Rate Survey released earlier this year found that the average American adult has been using the same primary checking account for just over 14 years. Chances are a lot has changed by then with your own finances and what banks and credit unions offer.

Your priorities and what you value in a Bank will help you figure out where to keep your money. But your main account will likely be at a bank or credit union.

credit unions

Credit unions are member-owned non-profit organizations and cooperative institutions. Profits from credit unions are returned to members; this can be through a return on savings, a lower loan rate, or low fees.

Credit unions may have a regional or local presence.

The benefits of a credit union

Here are two benefits of a credit union:

1. You are a member of a caisse: Sometimes this can result in a higher return on checking or savings or a lower annual percentage rate (APR) on a loan.
2. Federally insured credit unions are backed by the U.S. government: Your money is safe. The National Credit Union Administration (NCUA) administers the National Credit Union Share Insurance Fund (NCUSIF). The NCUA Credit Union Locator can help you confirm that a credit union is federally insured. Also, use the NCUA Equity Insurance Estimator to see how the insurance rules apply to membership accounts. This will help you determine what is insured and if any amount exceeds the coverage limits.

The Disadvantages of a Credit Union

Here are some cons to consider:

1. A credit union may not be in your area: Generally, credit unions are local or regional. If there isn’t one near you, it might not make sense to bank there.
2. Online banks may offer higher APYs: On a savings account or CD, an online bank may offer a more competitive APY than a cashier.
3. You may not be eligible to become a member: You may need to live or work in a certain location to become a member. There might be other requirements for the membership area – which is the common bond shared by members of the credit union. These requirements may include membership in a group or being a family member of an eligible member of the credit union. In some cases, you may be able to join an organization to become a member.

Physical banks

Physical banks can be among the largest banks in the country, such as hunt Where Bank of America. Or, it could be a small local or regional bank, or specific to a single state.

“We actually had a bank in our area (and) it was just one branch,” says Pam Horack, Certified Financial Planner at Pathfinder Planning. “And it was the bank.”

Either way, they will have a physical presence which usually includes opening hours and on-site ATMs. They might also have a drive-thru cashier. And they also offer digital banking services.

The advantages of a physical bank

Here are two advantages of a physical bank:

1. Location: These banks may have locations and ATMs on the street where you work or live. They may also have reliable locations almost anywhere you travel across the country.
2. In-person banking: Like a credit union, a physical bank offers the option of sitting down with a banker or withdrawing cash from a teller. Driving banking might also be a handy feature for you.

The disadvantages of a physical bank

Here are some cons to consider:

1. Deposit rates are generally very low: These banks are generally not known for offering competitive APYs on savings accounts, high yield checking accounts and CDs.
2. Going to a bank branch may be rarely necessary: Since most transactions can be done using online banking, mobile banking, or by writing a check, the need to visit a bank is rare. You might even be able to take care of things like getting a debit card in the mail, over the phone, or online.
3. They may require high minimum balances or have maintenance fees: These banks tend to charge fees. You may be able to avoid the fee by maintaining a certain balance or having a certain amount deposited into your account by direct deposit each month to waive the fee.

Online banks

Online banks generally do not have physical branches. You may be able to open an account in an online bank, wherever you live. But some online banks may only allow people from certain states to open an account.

Online banks typically entice customers with competitive annual percentage yields (APY) on savings accounts, money market accounts, and CDs. They also tend not to charge maintenance fees or require a minimum balance.

The advantages of an online bank

Here are two advantages of a physical bank:

1. Competitive APYs: Online banks tend to have some of the most competitive returns on savings account and money market accounts. They are also generally competitive on CD and some check accounts.
2. A free experience: Online banks generally don’t have minimum balance requirements or charge monthly maintenance fees.

The disadvantages of an online bank

Here are some cons to consider:

1. Usually they do not have a physical location: Online banks almost always lack physical locations. Being online only helps them save money. But it also means they could offer high yields to grab the attention of savers. This is often the reason why you see higher returns in online banking.
2. No face-to-face meetings: You will not be able to withdraw from a cashier or have a safe in an online bank. You also won’t be able to have a face-to-face conversation with a banker.
3. Customer service hours may not be 24/7: Consider customer service hours when choosing an online bank.

Compare bank types

Bank type	Branches	High APY on savings accounts
Physical bank	Yes	Usually no
Box	Yes	Generally competitive
online bank	No	Usually the most competitive

Choose the type of bank that suits you best

Those who rarely visit a bank and are looking for a high yield savings account must select an account in an online bank.

However, many people choose to have both an account at an online bank and one at a physical bank or credit union. This is particularly a path to consider if you are looking for both competitive yield and perhaps street safe.

Featured image by Rick Gomez of Getty Images.

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