The financial world is constantly competing for your time, attention, and money.
Simply turn on the TV or scroll through Facebook, and you’ll be faced with countless advertisements for banks, credit unions, and everything in between.
Here’s the good news: when it comes to finances, immigrants have more choices than ever.
While institutions battle for your bucks, you have one job: to make the best choice for yourself.
You don’t need to choose the newest, the coolest, or the biggest bank or credit union.
You just need to identify the right option for your unique financial needs.
Nevertheless, the question remains: which should you choose: a bank or a credit union?
In this comprehensive article, we’ll compare the two institutions so you can understand your options and make the most informed decision possible.
Key Article Takeaways
In a rush? No problem.
While we’ll dive into the details below, here are some general points to consider about banks and credit unions:
- Banks are “for profit” institutions: they’re owned by stockholders, not customers. As such, they are ultimately concerned with monetary growth (though customer service remains important alongside revenue).
- Credit unions are “not-for-profit” organizations: they’re owned by customers, not stockholders. Contrary to banks, credit unions are not focused on enhancing their “bottom line.” Instead, they’re primarily concerned with advancing the financial goals of their members.
- Most bank staff consists of salaried employees, whereas most credit union staff are volunteers.
- Traditional banks typically have a wider array of financial products than credit unions.
- In most cases, banks charge higher loan rates than competing credit unions.
- While credit unions offer fewer types of loan products, they generally can offer much more favorable rates than major banks.
- As banks have larger budgets (and broader networks), they generally have more advanced digital banking technology than credit unions.
- While credit unions may lack the technological infrastructure of competing banks, they are generally regarded for delivering a more personable level of customer service.
Note: Keep in mind that these are general descriptions of banks and credit unions. As always, no two institutions are alike. Before you decide on a particular bank or credit union, be sure to carefully research each institution and speak with a customer representative.
Bank: Defined
Banking services are essential to modern life. In fact, they’re nearly as old as human civilization itself.
In its simplest form, a bank is a licensed (i.e., federally regulated) financial institution that provides customers with access to two fundamental services: deposit accounts and loans.
In other words, a bank is a place where you can store money, make withdrawals, and utilize credit products.
Beyond those core offerings, banks provide a full spectrum of additional services including currency exchange, wealth management, business banking, insurance protection, and more.
As previously mentioned, banks have the ultimate goal of earning a profit for their shareholders. They accomplish this by charging increased interest on loan products issued to their customers.
As of 2021, there were over 4,230 federally-insured banks in the United States, including national banks, state-chartered banks, retail banks, commercial banks, and investment banks.
While many of these banks have brick-and-mortar locations, the vast majority of them conduct business online.
Why Some Immigrants Prefer Banks
When it comes to choosing a bank, size and reputation matter.
Larger retail banks often appeal to immigrants for their name recognition, their national presence, and their total assets under management (AUM).
For example, the three largest banks in America have nearly $7 trillion in AUM.
Of course, size isn’t the only consideration.
While larger banks have a panoply of services, smaller banks can provide similar access with added emphasis on customer service.
In other words, smaller banks can provide the best of both worlds.
Ultimately, immigrants choose banks for a wide variety of reasons, including their:
- Full suite of product offerings: Banks deliver the broadest spectrum of personal and commercial banking products, including business loans, business credit cards, personal loans, money marketing accounts, Individual Retirement Accounts (IRAs), and specialized products like student loans and trustee services.
- Fewer eligibility requirements: Banks are open to the public at large. In most cases, the only essential criteria for opening a bank account is that you’re over the age of 18 and have a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN).
- Access to ATMs: Because traditional banks have many branches, they also have the widest network of ATMs (both in America and overseas).
- Cutting edge technology: Big banks embrace new technology (as seen on their websites and mobile apps). If online banking is a priority for you, traditional banks may be the more compelling option.
Potential Drawbacks to Traditional Banking
Of course, banks aren’t the ideal choice for everybody.
While they provide many advantages, traditional banks have potential drawbacks that can come in the form of:
- Higher fees: Ultimately, banks are focused on profits. Therefore, they have higher fees than credit unions, including monthly fees, annual fees, overdraft fees, and more.
- Higher loan interest rates: To earn a profit for shareholders, banks typically charge higher interest on loan products.
As we’ll discuss below, credit unions generally have better loan interest rates. - Lower deposit interest rates: According to recent data, the average savings account rate at a traditional bank is a meager 0.05%.
In other words, your money won’t grow with much rapidity in a traditional savings account. - Minimum account balances: In addition to levying higher fees, many banks also include minimum account balances and requirements.
For example, some traditional banks may require a minimum balance of $500 (along with service fees if the balance dips below the required amount).
Such stipulations can make it more difficult for immigrants to confidently access loan products and credit cards.
Note: These are general assessments of the traditional banking world. Remember, there is no “one-size-fits-all” approach to banking.
As an immigrant, make it your goal to find an institution that provides the accessibility, convenience, and reliability you need to get the most out of your finances.
Credit Union: Defined
Credit unions have grown in popularity in recent years. In fact, total American membership now exceeds 125 million people.
There’s a reason for the increase in enthusiasm (particularly amongst immigrants): credit unions provide many of the same services as a bank, with more affordable rates, a heightened sense of community, and a greater emphasis on customer service.
On the surface, credit unions function quite similarly to traditional banks. For example, you can make deposits at a credit union and take out loans.