3228-3230 Eastern Avenue, Baltimore, MD 21224
Aug 25

Should I choose a bank or a credit union?

Should I choose a bank or a credit union?

There’s no easy answer to this question, but we can give you some information to help you make an informed decision. Ultimately, the choice comes down to trust. When your financial success is at stake, you should always bank with people you trust. Banking is about relationships, not products and services.

Consumer-centered service is one of the biggest areas where local banks and credit unions overlap.

Credit Unions, as non-profit cooperatives, serve a dedicated audience of members (customers). Many credit unions were formed by employee groups as a way to help one another grow financially by investing each others’ funds and paying dividends to each other. To be a part of one of these early cooperatives, you had to be an employee of the sponsoring organization or business.  Although the trend toward community credit unions (where anyone can join) during the last two decades has expanded their marketing reach, they still serve a fairly niche market within a geographic boundary. Due to the deep connections among their members, credit unions enjoy a lot of loyalty from their members.

Local banks, like Homewood Federal Savings Bank, serve anyone who is looking for deposit or loan products and services. Local banks have a primary audience that usually lives in fairly close proximity to the bank. They get to know the people and businesses in their neighborhood and understand that they are reliant on one another for both to be successful. With online and mobile banking, they have expanded their reach beyond their geographic communities and will often retain customers who no longer live in the area, but have built a trusted relationship with them. Banks often have larger ATM networks than credit unions, which also allows for a wider geographic range in their customers.

The rates advertised at my local credit union usually seem better than those at my local bank.

You are correct. It is very likely the rates you see at your local credit union are, in fact, better than what you’ll find at your local bank. This has been at the heart of much discussion and proposed legislation for decades. Simply put: it boils down to business models.

Credit unions, as non-profit, member-owned cooperatives are not subject to federal taxation. Their goal as a business model, is to serve their members’ financial interests. As such, they return “profits” to their membership by charging lower interest rates on loans, having fewer or lower fees, and often paying a little more on deposit accounts.

Local banks (and all banks, large or small) follow a for-profit business model. They make profits and return them to shareholders. Because of this business model, they are subject to federal taxation. What this amounts to for the consumer is higher loan rates, higher and more fees, and lower rates earned on deposits.

However, as a for-profit entity, banks often have more capital available to invest in newer, more current technology and security. They often offer a wider array of products and services. Banks can also have more flexibility in who they serve.

I want peace of mind knowing my financial institution has my best interests at heart and can handle all of my financial needs, personal and professional.

Again, local banks and credit unions are similar in that they both will provide up to $250,000 of insurance on your deposits. Banks are insured through the Federal Deposit Insurance Corporation (FDIC) and credit unions are insured through the National Credit Union Administration (NCUA).

Banks have an advantage over credit unions in the commercial lending area. Many credit unions are not established for commercial lending. In recent years, legislation has allowed credit unions to make commercial loans, but many still do not. Those that do handle commercial lending have a lot of limits and regulation to contend with and are not as agile in meeting the needs of those seeking commercial loans. The recent Paycheck Protection Program (PPP) loans were handled largely and most effectively by local banks that have established relationships with business owners. Credit unions are not set up well for these types of scenarios.

By comparison, local banks are interested in seeing their communities grow and thrive as both commercial and residential centers. Local banks are a great resource for small-business owners. Local bankers know their communities and they understand the unique challenges their customers may be facing with their businesses. If your dream is to own your own business, you might find a local bank to be the best fit for you as you begin to build toward that dream.

In Baltimore, Homewood Federal Savings Bank, has served Highlandtown and the surrounding areas for nearly 100 years. Its secret to success: they build lasting relationships with their community. Homewood Federal Savings Bank offers modern products, with old-fashion customer service. We still take the time to manually underwrite all of our loans and get to know the borrower’s unique situation – no computer algorithms to decide whether or not you are credit-worthy. We also service your loan until your final payment. Our role is to be a partner in your total financial success.