One of the most critical decisions an entrepreneur makes is often one that is not given a whole lot of thought. The determination of where to form a financial relationship that includes; checking account, savings, investments, loans, etc. is of vital importance and worth understanding the options.
Differences between Banks, Credit Unions and Savings Institutions
For some, the terms; bank, credit union, and savings institution may be used interchangeably. However, a closer look reveals some differences between them that are worth considering as a business customer.
Banks, Credit Unions and Savings Institutions operate under federal or state charters. Their deposits are insured (up to $250,000, not everyone realizes that it is not for the total amount if it exceeds that amount). The two federal agencies that provide this insurance are: the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). All institutions are subject to periodic regulatory and federal insurance examination.
Bank - Banks are community, regional or national for-profit business corporations owned by private owners, investors and governed by a board of directors chosen by the stockholders.
Credit Union – Contrarily, a Credit unions is a non-profit financial cooperatives owned by their members and governed by a board of directors elected by, and from among, those members. Most typically, there is a common bond among the members. Those commonalities may be that the members belong to the same organization or living in the same geographical area. Credit unions accept deposits from their members and use them to make short-term loans. Deposits are regarded as purchases of shares, and all earnings of the credit union are paid out as dividends to members/owners.
Savings Institution – Savings institutions (also called savings & loans or savings banks) specialize in real estate financing. They can be structured either as corporations oras what is known as a mutual (defined as a type of business where making a deposit is like purchasing stock in the organization). Savings institutions always have the letters SSB or FSB after the name to indicate whether they are a state savings bank or a federal savings bank, respectively. Both types are governed by an elected board of directors.
Range of services
All of the above financial institutions offer similar basic banking services (checking and savings accounts, consumer loans, etc.). However, the larger or more comprehensive ones may offer additional services like; credit cards, mortgages, foreign currencies, etc. Each has some special features. Generally:
• Banks emphasize business and consumer accounts, and many provide trust services
• Credit unions emphasize consumer deposit and loan services
• Savings institutions emphasize real estate financing
Comparing Bank vs. Credit Union
Since a credit union’s primary focus is its people, or co-owners, they are more concerned about making you happy than turning a profit. Customer service tends to rate higher in Credit Unions than in Banks. As a result, credit unions typically offer more educational services and seminars to teach you about all financial products so you can make the best decision. Banks, on the other hand, may be more inclined to recommend only those products that bring in higher corporate profits.
Also, it is informative to note that as a not-for-profit organization, credit unions have many advantages over banks.For instance, they are exempt from most state and federal taxes, do not have many marketing costs, or high salaried executives. This allows credit unions to pass on great rates to their members, including:
- Higher Interest Rates on Savings Accounts
- Lower Rates on Auto Loans, Mortgages and Credit Cards
- Free Checking Accounts
- Lower or No Penalties for Overdrafts and Late Payments
- Your money is also just as safe as with a standard bank since up to $100,000 of your cash is insured and regulated by the National Credit Union Association, which is the same as the Federal Reserve Bank’s coverage.
However, there are downsides to a credit union. Among them are: lack of convenience (evidenced by fewer branches), less ATMs, and smaller universe of product/service offerings. If you choose to pursue locating a credit union, you can search on www.findacreditunion.com.
It serves your business purposes well to remember that a bank is a publicly traded, for-profit organizations. Unless you have a personal banker (usually offered to larger customers), you generally will not receive the same level of service and satisfaction as you would from a credit union. Rates, fees and penalties will undoubtedly be higher too, but these inconveniences may be outweighed by the benefits.
Banks will have a much larger selection of products for you to choose from, including retirement plans, stock investing programs, and other services not offered by credit unions. Secondly, banks can offer more convenience with more ATMs and more branches, and it is as simple as walking in the door to join.
So when deciding between a bank and a credit union, you have to think about your business goals and personal needs. If you want better rates and more personalized service, go with the credit union. If convenience is your number one criteria then stick with a bank for your personal banking needs.