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What You Want. The Difference Between Banks and Credit Unions.

Small confession to make.  I don’t actually know everything there is to know about personal finance.

*Phew*.  Now that I’ve gotten that off my chest, let me explain.

I come back to this blog week after week, hoping to illuminate concepts and ideas that might help you on the journey to financial freedom and financial independence.  I even said in my very first post that I had hoped this blog would be a journey we embarked on together- and that meant learning new things along the way. (Like that my Chase Sapphire Reserve card gives me annual DoorDash credits, I had no idea!).

But take comfort and joy dear reader, in the notion that I will continue to ask myself questions, and to the best of my abilities I will continue to seek and provide the answers.  Today’s question is simply…

What is the difference between a bank and a credit union?

Let’s Hear It For The Bank!

In the spirit of taking absolutely nothing for granted here at Creative Finance- what exactly is a bank?

bank is a financial institution that accepts deposits from the public, while simultaneously making loans.  They take money in, hold it.  They give money out, ask for it back.

Medieval banking can be traced back as far as the 14th Century, and modern banking as we know it exists in nearly every inhabitable space in the world.  

When we think of banks, we might think of Chase, Bank of America, or more recently Ally Bank.

These sacred institutions provide a place for us to keep our money safe vs. the ol’ wad of cash hidden in the couch cushions-pie, Earl.

Banks provide a hub for convenience and security.  Convenience can come in many forms.  Maybe it’s the ability to zip down to the corner ATM and withdraw some cash.  Maybe it’s the snazzy online portal where you can Zelle your friend with the click of a button.  Security speaks for itself.  Haven’t you ever seen a movie where the bad guys need all that dynamite to break down the enormous circular door with the handles on it?

What I NEVER necessarily knew about a bank growing up was that banks are defined as “For Profit” institutions.  I also trusted them with my money (and still do), but didn’t get the concept that these gigantic conglomerates actually profited off of my personal funds.  Wait a minute- I want to profit off my personal funds!  Like, more than the bank does!

Three Cheers For The Union!  The Credit Union.

Credit Unions offer many of the same services that a bank would offer, with one major divergence on the operation- they are “non-profit” institutions.

They still offer checking and savings accounts, they can offer loans, their deposits are insured in the same way that bank deposits are.  The area in which they don’t quite compete: convenience.

Whereas you might walk down the street in New York City and pass 5-6 Chase Bank branches in a ten block radius- one of my favorite credit unions, the DCU (Digital Credit Union, New England Area) has 23 branches total.  Their online access is great, but if you’re the type of person who needs to walk into a branch to talk a human in person- probably not the group for you.

But these Credit Unions literally do everything a bank can do for you.

Need a mortgage loan?  Sure.  A credit card?  Got em’.  Interested in finally starting an IRA?  Your credit union can help.

Credit Unions are actually governed by their members- and one long time stigma around them is that you need be a part of a community group to gain access (military, workplace, church, etc.). And while it’s true to an extent, not always the case.  And the interest rates can be oh so sweet.

Let’s take a look at that first Credit Union I mentioned, DCU.

D, C, U!  What Is It About You?

I like this Credit Union a lot, because of a certain perk they offer- and in my opinion they can and should easily slot into your Emergency Fund portfolio.

DCU offers an online savings high with high flying interest, and I adore them for it.

They offer 6.17% interest on the first $1,000 you keep in your account.  6.17%!  Remember how much we love Ally Bank because their interest is way above the national average?! (Currently at .8%).

One of the reasons I always struggled with keeping a real emergency fund hand is it’s so hard to shake the feeling that your money should be doing something for you.  For many years that meant an urge to spend and use vs. save, which required a massive retraining of the way I see money in my accounts.  But with a super high interest account like this one, not only is your money doing something for you- your money is working for you.  Your money’s makin’ money.

It’s important to keep in the back of your mind that we are also constantly battling inflation over the years to come.  We have to expect that prices will continue to go up, which means the value of money will drop as we go.

If we expect an annual inflation rate of 2-3%- by keeping your money in a regular savings account, you’re actually “losing” money in the long term.  (Don’t freak out!  Please keep your emergency monies handy in case you need them.)

This is why we encourage investment for retirement.  You’re hoping to get an average 8% return that will help beat inflation.

But if you can keep some of your emergency fund in a 6%+ account- that’s a nice way forward also.

DCU has no fees, and a $5 minimum deposit requirement to start the account- the only other entry requirement is you have to make a one-time $10 donation at the time you sign up (they have a list of options).  But a one-time donation isn’t so bad when you’re going to generate over $60 annually on your $1k in savings here.

You can open 1 DCU savings account per person, so a married household could have 2 accounts- and you can actually open custodial accounts for your kids, so even more if you have children in the nest.

I Want It All!  I Want The Whole Bank And Credit Union Experience In A Ball, I Want It All!

And you can have it all reader!

Today’s post isn’t necessarily about either / or.  It can be both.

As mentioned I do most of my primary banking with Ally Bank, whom I love.  They do offer convenience, easy to access customer service, and great tools in their own right in holding my money for me while keeping it safe.

But why not splice in a little credit union action to make your umbrella work a bit harder for you?

I often hear from folks that they’re nervous to open new accounts.  I think we are trained as a society (at least my fellow millennials are), to think we should plant our roots with a bank and never stray away.  That’s how I was for a long time at least.

(And no, opening a checking or savings account will not have any impact on your credit score!)

But once you start to look around a bit, you might find there are amazing resources around every corner.  Don’t go bananas and open a hundred different accounts in a hundred different places- but if setting up a 6.17% account with DCU takes 10 minutes and you’ll be $60 richer at the end of the year for it- why not?

DCU is just one example, there are tons of other worthwhile credit unions to explore out there.  And in the interest of learning, I invite you to do the research on your end, and maybe you’ll find a different union that’s great for you.  I invite you to share the knowledge with your friends and family.  Share it with me, I’d be entirely grateful for more resources.  But the great thing is, there’s no wrong answer here- it’s all about what you want.  It’s clear.  And if it’s right…what you want is right in front of you.


Have a Credit Union you love? Share the love! Comment below or send me a message with your favorite Credit Union- I’d love to know more about them.

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