Credit unions or banks?
The importance of knowing the difference between a credit union and bank.
If you are thinking about opening a new checking or saving account, you might be wondering if you should go to a bank or credit union to open an account. Before opening an account, you should research the financial institution and ensure it is Federal Deposit Insurance Corporation (FDIC) insured (banks) or National Credit Union Administration (NCUA) insured (credit unions). These institutions provide coverage that generally protects your checking or saving account up to $250,000 should the financial institution be unable to pay its depositors. It is important to note investments are not FDIC or NCUA insured.
Investopedia defines banks as financial institutions licensed to receive deposits, make loans and may provide financial services. My Credit Union defines credit unions as not-for-profit financial institutions that are owned by members. Generally, banks and credit unions offer the same services (i.e. checking and saving accounts, loans). According to Investopedia, the most notable difference is that banks operate for profit while credit unions are not-for-profit which means banks may have higher fees and loan interest rates than credit unions. Another difference is the availability; banks usually have several branch locations and ATMs, while credit unions may not have many physical locations or readily available ATMs.
If you open an account and discover you are denied, you can request a copy of your consumer report from Chex Systems, Inc. (ChexSystems)—a nationwide specialty consumer reporting agency under the federal Fair Credit Reporting Act (FCRA). Their clients regularly report information on closed checking and savings accounts. So, if you have an unpaid balance with a financial institution, you may be on a Chex System report and turned down for an account. However, even if you are Chex System reported, you still may be able to open an account with a financial institution that has second chance banking. Check your local financial institution to see if a second chance account is available.
Be sure to check out Michigan State University Extension and MIMoneyHealth.org for more great tips. Don’t forget to take our Financial Health Survey to get your score and learn about more ways to improve your financial health.