Banks vs. credit unions: How to decide

If your money has been sitting at the same financial institution for a while, it's a good time to see if there's a better option out there.

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By Matthew Goldberg, Bankrate

A Bankrate survey published earlier this year found the average U.S. adult has used the same primary checking account for a little more than 14 years. Odds are a lot has changed between now and then with your own finances and with what banks and credit unions offer.

Your priorities and what you value in a bank will help you determine where to keep your money. But your main account will probably be at a bank or a credit union.

Credit unions

Credit unions are not-for-profit organizations that are member-owned and cooperative institutions. Credit union profits are returned to members; this may be through a savings yield, a lower lending rate or by having low fees.

Credit unions may have a regional or local presence.

The pros of a credit union

Here are two benefits of a credit union:

1. You're a member of a credit union: Sometimes this might result in getting a higher yield on checking or savings or a lower annual percentage rate (APR) on a loan.
2. Federally insured credit unions are backed by the U.S. government: Your money is safe. The National Credit Union Administration (NCUA) administers the National Credit Union Share Insurance Fund (NCUSIF). The NCUA Credit Union Locator can help you confirm a credit union is federally insured. Also, use the NCUA's Share Insurance Estimator to see how insurance rules apply to member share accounts. This will help you determine what's insured and if any amount exceeds the coverage limits.

The cons of a credit union

Here are some downsides to consider:

1. A credit union might not be in your area: Typically, credit unions are local or regional. If one isn't near you, it might not make sense to bank there.
2. Online banks may offer higher APYs: On a savings account or a CD, an online bank may offer a more competitive APY than a credit union.
3. You might not be eligible to be a member: You might have to live or work in a certain place to become a member. There might be other requirements for the field of membership - which is the common bond shared by the credit union members. These requirements may include membership in a group or being a family member of an eligible member of the credit union. In some cases, you might be able to join an organization to become a member.

Brick-and-mortar banks

Brick-and-mortar banks can be some of the largest banks in the country, like Chase or Bank of America. Or, they can be a small local or regional bank, or specific to a single state.

"We actually had a bank in our area (and) it was just one branch," says Pam Horack, certified financial planner at Pathfinder Planning. "And that was the bank."

Either way, they'll have a brick-and-mortar presence that usually features lobby hours and on-site ATMs. They might have a drive-thru teller, too. And they also offer digital banking.

The pros of a brick-and-mortar bank

Here are two benefits of a brick-and-mortar bank:

1. Location: These banks might have locations and ATMs down the street from where you work or live. They also might have dependable locations nearly everywhere you travel across the country.
2. In-person banking: Like a credit union, a brick-and-mortar bank offers the ability to sit down with a banker or withdraw money from a teller. Drive-thru banking might also be a convenient feature for you.

The cons of a brick-and-mortar bank

Here are some downsides to consider:

1. Deposit rates are usually very low: These banks aren't generally known for offering competitive APYs on savings accounts, checking accounts and CDs.
2. Going into a bank branch might be rarely necessary: Because most transactions can be done using online banking, mobile banking or by writing a check, it's rare to need to go to a bank. You might even be able to take care of some things, like getting a debit card mailed to you, over the phone or online.
3. They may require high minimum balances or have maintenance fees: These banks tend to charge fees. You might be able to avoid the fees by keeping a certain balance or by having a certain amount deposited into your account via direct deposit each month to waive the fee.

Online banks

Online banks usually don't operate physical branches. You might be able to get an account at an online bank no matter where you live. But some online banks might only allow people in certain states to open an account.

Online banks usually attract customers with competitive annual percentage yields (APYs) on savings accounts, money market accounts and CDs. They also tend not to charge maintenance fees or have minimum balance requirements.

The pros of an online bank

Here are two benefits of a brick-and-mortar bank:

1. Competitive APYs: Online banks tend to have some of the most competitive yields on savings account and money market accounts. They are also usually competitive on CDs and some checking accounts.
2. A fee-free experience: Online banks usually don't have minimum balance requirements or charge a monthly maintenance fee.

The cons of an online bank

Here are some downsides to consider:

1. Usually, they have no physical locations: Online banks almost always lack physical locations. Being only online helps them save money. But it also means they might offer high yields to get savers' attention. That's often why you see higher yields at online banks.
2. No face-to-face meetings: You won't be able to make a withdrawal with a teller or have a safe deposit box at an online bank. You also won't be able to have an in-person conversation with a banker.
3. Customer service hours might not be 24/7: Consider the customer service hours when choosing an online bank.

Comparing the banking types

Bank type	Branches	High APY on savings accounts
Brick-and-mortar bank	Yes	Usually not
Credit union	Yes	Usually competitive
Online bank	No	Usually the most competitive

Pick the bank type that's the best fit for you

Those who rarely visit a bank and are looking for a high-yield savings account should select an account at an online bank.

However, many people choose to have both an account at an online bank and one at a brick-and-mortar bank or credit union. That's especially a route to consider if you're looking for both a competitive yield and maybe a safe deposit box down the street.

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