Many people start their financial independence with a high street bank account when they get their first debit card. But did you know there are more options out there? With so much variety in the ways people want to save and spend their money, it’s good to know what options are available to you.
Are credit unions good for savings? Are they better than banks? Credit unions offer many benefits similar to banks, and some people think they’re even better, but ultimately it’s down to what you want from your bank or credit union as an individual. Let’s look at the difference in this article.
A Bank Savings Account vs Credit Union Account
There are pros and cons to opening a bank account and a credit union account. It depends on what your needs are. Being well-informed is the best way to make the right decision for you.
The Difference Between Non-profit and For-Profit
The main difference between banks and credit unions is their profit status. Credit unions are not for profit: all the ‘profits’ they accumulate through interest over the year go back into the credit union’s running and into the members’ savings accounts. This means the credit union doesn’t actually make a profit as a body, which means all its takings from loan interest are for the benefit of the people using the company.
These profits are known as dividends, and rather than earning interest on savings rates, credit union members will get a dividend as a lump sum at the end of the year. Find out how credit union savings and dividends work.
Credit unions can also get funding from organisations that share their common bond, which helps towards their running costs. This means fewer profits made on credit union loans need to be paid to the running costs and could lead to higher dividend rates for members.
Because credit unions are cooperatively owned, their objective is to provide their members with the best financial opportunities in terms of loan rates and interest rates.
Banks are for-profit: they are privately owned or trade publicly, which means their profits go to shareholders or their own objectives, not to the account holders. Because of this, banks have higher interest rates on lending and more fees because their objective is to make a profit from their account holders.
When considering either a credit union or bank for savings accounts some people want to know how profit vs non-profit business models affect the benefits they get. They might also look at it morally and decide which type of business they want to support more.
Credit Union Savings Account Pros and Cons Compared with Banks
Here are some of the most signification benefits and advantages of credit unions over banks. We also look at some disadvantages for a balanced view.
- Higher interest rates (dividends) on savings. Credit unions can offer up to 8% dividend interest, though most credit unions offer 1–3%. It’s a good idea to compare dividend rates with the interest rates of banks you’re considering opening an account with.
- Fewer fees are associated with setting up an account. Most credit unions only ask for members to pay a small annual fee that covers administration costs.
- Thanks to a common bond, members have access to specialist financial help and information in a certain area. For example, if you work in healthcare, your credit union might offer resources on saving money explicitly directed towards the work-life of healthcare workers.
- You’re the priority, and the credit union isn’t trying to profit personally from your savings, meaning more profits go to you. Credit unions are often more ‘transparent’ than banks too, as there aren’t any hidden fees that could put off potential account holders.
- High levels of customer service are commonplace in credit unions. As member-owned, non-profit organisations, their members are at the heart of their ethos.
- Credit unions also have a more understanding approach to new members than banks do with account holders. If your credit rating means banks have turned you away, a credit union might think differently. Most credit unions assess the viability of opening an account or taking out a loan on a case-by-case basis.
- Membership is required in order to join a credit union. Although this process isn’t usually too tedious, it does mean you need to have a ‘common bond’ with a credit union in order to join. If you don’t have a professional (have job industry) or geographical (same location) common bond with a credit union you won’t be able to join.
- Credit unions do have some limitations on savings, and usually have a minimum and maximum amount of money that can be paid into each savings account per month. At Metro Moneywise, our minimum is £5 per month, and our maximum is £350 per month. Find out how saving with a credit union works.
- Credit unions can have fewer features than some banks. As non-profit organisations, credit unions tend to focus on the most important services to their members so they can attribute more dividends to their members annually. This cuts out the fat, meaning there are fewer unnecessary features, but banks often have more attractive service offerings.
- For the same reason as above, credit unions can have fewer branches than banks. This could be due to saving on unnecessary costs for the organisation’s running, or, in the case of credit unions with a geographical common bond, they may not need to extend their services outside of a specific region.
Savings with a credit union is easy and straightforward. Take a look at some of our guides or give us a call on 01706298966 to ask us a question.
- How to Join a Credit Union
- Closing a Credit Union Account
- Credit Unions: Frequently Asked Questions
- What Happens to Credit Union Savings When You Die?
- Can I Take My Savings Out of My Credit Union Account?
- Changing Your Address: What Your Credit Union Needs to Know