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Dollars & Sense: Bank or credit union? Finding the best fit

Unless you’ve been stuffing your life savings in your mattress, you probably have your money in either a bank or a credit union. You may not have given the financial institution where your money is stashed much thought before now, but banks and credit unions offer different benefits, de­pending on what you’re looking for. And you might be better off making a change.

Before you move your money from one to another, it’s important to understand the differences between banks and credit unions and what those differences mean to you. Many people are under the impression that banks and credit unions are the same. They are not. With a little research, you can determine which type of financial institution best meets your needs.

Bank basics

Modern banks can trace their history back to 14th century Italy. Banks are much more familiar than credit unions — you’ll certainly see more banks than credit unions around town. Banks are owned and run by investors and shareholders who make money based on their investment.

Banks are for-profit entities, which means they are supposed to make money for their investors. There are community banks that may be specific to your town or region, and there are national banks with branches all over the country or even the world.

More than 90 percent of United States households had bank checking or savings accounts, according to a 2009 study by the Federal Deposit Insurance Cor­por­ation (FDIC). Banks ac­counts for up to $250,000 are insured by the FDIC.

Credit union competitors

Modern credit unions trace their roots back to the middle of the 19th century. The first credit union in the United States was established in 1908.

People who use a credit union are considered as “members” as opposed to a customer, and members have a say in how the organization is run. Members elect a board of directors to represent the members in making decisions and upholding policies.

Credit unions are typically designed to serve a particular group; most of the members tend to work for or belong to a particular organization. There are, however, some credit unions that serve a very large number of different membership groups - and these large credit unions offer all the same services as very large banks. The largest credit union in the United States, the Navy Federal Credit Union — which represents Department of Defense employees, contractors and families of service people — has more than $45 billion in assets and more than 3.4 million members. Currently, about 44 percent of Americans have accounts of some type with credit unions.

Unlike banks, credit unions are not for-profit organizations; they must earn a small “surplus,” any additional profits are used to benefit the members. These benefits usually include higher interest rates for savings, lower fees for various services and frequently, free checking and bill payment services.

Accounts at credit unions are insured through the National Credit Union Share Insurance Fund up to $250,000.

Understanding products and fees

For the most part, banks and credit unions offer similar products and services. Both types of institutions will provide checking accounts, although checks are called share drafts at credit unions. Both provide savings accounts, different types of loans, credit cards and certificates of deposit (CDs). However, large banks may provide a wider range of investment products and services, have a more sophisticated online system and offer a larger network of ATMs and locations.

Some large credit unions provide equally sophisticated services, but there are fewer large credit unions and people need to meet membership criteria to join them. However, since the criteria to join a credit union can include being a relative of an eligible member, this may not be a major barrier. How important these different services are to you will play a role in your decision to use a bank versus a credit union.

If you’ve examined your bank statement lately, you may have noticed a list of fees and charges assessed to your accounts. Recently, some banks caused a stir among their customers for assessing a monthly fee on ATM cards, regardless of whether the cards were used. Credit unions have tried to differentiate themselves from the for-profit banks by offering lower fees and better interest rates. Fees may be one area where credit unions can offer you a better deal. Carefully compare both organizations’ fee structures to see how you can benefit.

Best of both worlds

Could you use both a bank and a credit union to your advantage? Of course, say experts. If a credit union is offering lower interest rates, go for a loan through the credit union. If you like the convenience of having an ATM on every corner that a national bank offers, then keep some accounts with that bank. Bottom line: Make your money, and your financial institutions, work for you.

Dollars & Sense is a monthly column provided by the Oregon Society of CPAs




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