Banks and credit unions provide similar services to their customers, such as checking, savings, loans, CDs, and financial services for individuals and businesses. But there are a few differences that distinctly set them apart. These differences are both customer-facing and behind the scenes.
For-Profit Vs. Non-Profit
Banks operate as for-profit entities, whereas credit unions are non-profits. What difference does that make you might ask? Banks drive profitably for their shareholders. That isn't the case for credit unions. When someone becomes a customer of a credit union, they become a member of the credit union. Credit unions are also non-profits but unlike most non-profits, they are tax-exempt. Although credit unions do pay state, local, property, and payroll taxes.
Credit unions are known for providing individualized customer service. Because many credit unions are regional rather than nationwide, they are able to better focus on customer service and building relationships with customers. National banks have a more difficult time when it comes to building relationships with individuals. This can be seen first hand you call in and get a different person every time. However, customer service at banks is usually consistent due to training.
To put the customer service comparison into numbers, the 2018 American Customer Satisfaction Index Finance and Insurance Report showed the following:
• Credit Union Customer Satisfaction: 89 (88 for banks).
• Credit Union Speed of Service at Branches: 88 (85 for banks).
• Credit Union Call Center Satisfaction: 84 (81 for banks).
While the gap has certainly closed up due to improvements in banking customer service, credit unions still have a small lead.
Interest rates are generally higher at credit unions than they are at banks. This is not uniform, however. The CUNA 2018 First Quarter New York Membership Benefits Report showed that New York credit unions offered more favorable interest rates than their banking counterparts:
• 60-month new car (A paper): 3.00% vs. 4.84.
• 30-year fixed rate 1st mortgage 0 pts: 4.61 vs. 4.64.
• Home equity / 2nd mortgage / 80% LTV 0 pts: 4.52 vs. 5.22.
• One year certificate $10,000 balance: 0.82 vs. 0.74.
• Money market accounts: 0.25 vs. 0.17.
The result was $85 per member or $178 per member household over the 12 months ending March 2018.