Why Credit Unions Typically Offer Better Rates Than Banks

Bank with blue background.When someone opens an account of any sort at a credit union, they are in essence given a small membership interest in that credit union, and are as a result, a shareholder. This is more commonly known as being a member of the credit union.

Banks are different in that they have shareholders as well (if they are publicly listed), but one has to purchase shares for that interest, rather than just opening an account. A bank is a for-profit corporation and is taxed, whereas a credit union is not-for-profit, and is not taxed. Many financial experts suggest that having a credit union may be a better choice in terms of interest rates, customer services, and access to more affordable lending.

A lot of these assumptions come down to the reality that credit unions simply work differently than banks. Below are a few things to keep in mind when deciding between banking with the two, as well as why credit unions may be able to pay better rates or offer lower interest on the same products compared to a traditional bank.

Benefits for the Credit Union Member

A credit union is ultimately established for the benefit of members and owners, rather than stockholders. Instead of receiving dividends or a higher-priced shares of stock in the financial institution, members are granted access to higher interest rates for savings accounts and lower interest rates for loans in many cases. Let’s take a closer look at the numbers.

Major Interest Rate Differences Between Credit Union’s and Banks

A few times each year, the National Credit Union Association (NCUA) publishes a comparison between credit unions and banks as it relates to interest charged on popular deposit and lending products. As of March of 2022, some notable aspects of the most recent report include the following products:

  • 5-year certificate of deposit (10K): 0.78% APY from credit unions versus 0.60% APY from banks
  • Money market account (2-5K): 0.13% from credit unions versus 0.09% from banks
  • Home equity loan, 5 year, 80%: 4.16% from credit unions versus 4.70% from banks
  • 48-month used car loan: 2.84% from credit unions versus 5.03% from banks

In some cases the differences may seem small, but they certainly can add up over time. This is particularly true when comparing lending products between credit unions and banks. Because of their non-profit status and member-focused missions, credit unions are far more likely to have stronger rate offerings on all products compared to similar banks.

Choosing a Credit Union

There are many different credit unions out there – most will offer the same sorts of products, and most will offer about the same rates. The best way to secure a loan, whether it is for a new home, new car, or student loan, or to find the best savings or checking accounts, involves shopping around. You can then judge based on the interest rates, as well as the customer service that you receive.

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Posted on March 8, 2021 by in Personal Finance

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