Bank vs Credit Union Savings Account: Which Is Right for You?

What type of financial institution is better for opening a savings account? Bank or credit union?

While both banks and credit unions have their strengths, credit unions typically offer higher interest rates and lower fees, making them a compelling option for savings accounts. This post will clarify the differences so you can confidently choose the best fit for your needs. Read on, or contact HFS Federal Credit Union for more financial education resources.

Understanding the Basics: Banks vs Credit Unions

The biggest difference between banks and credit unions is how they’re owned and operated. Banks are for-profit institutions, and credit unions are not-for-profit and member-owned. Banks are owned by shareholders and focused on generating returns for them, while credit unions are more focused on supporting and benefiting their members.

Although banks and credit unions offer similar products, their organizational philosophies directly affect account holders’ experiences and outcomes. Recognizing these core differences is essential to making an informed savings decision.

How Ownership Structure Affects Your Savings

Here’s how credit union and bank ownership structures impact your savings:

• One benefit of credit union membership is that members are essentially part-owners who have a say in how the institution is run.
• Profits are often paid in dividends to credit union members, while bank profits are paid to shareholders.
• Credit union savings accounts tend to offer better rates and lower fees than banks.

Do Credit Unions Offer Savings Accounts?

Yes! Credit unions and banks both offer savings accounts, money manager accounts, share certificates, and IRAs. Credit unions offer products similar to those of banks, often with added member benefits.

Types of Savings Accounts Available at Credit Unions

Here’s a look at the types of savings accounts that credit unions typically offer:

• Conventional savings accounts for everyday needs.
• Money manager accounts for members with higher balances with tiered dividend rates.
• Share certificates with fixed rates and terms. (Share certificates are a credit union’s version of Certificate of Deposit).
• Specialty savings accounts (i.e., Christmas club or vacation savings).
• Individual Retirement Accounts (IRAs).

Interest Rates and Dividends: Where Your Money Grows Faster

When you open a savings account, there’s the opportunity to earn interest on deposits. At banks, this is expressed as interest. At credit unions, you’ll receive dividends. Here’s a closer look at each:

• Interest on savings accounts: Banks pay their customers interest, typically at fixed rates paid out monthly. The terms, minimum balance requirements, and account features may differ from those of similar credit union products.
• Dividends on savings accounts: Credit unions pay dividends, which are a share of earnings given back to members. Dividends often vary with the credit union’s performance and are paid at the end of each dividend period. The structure, eligibility, and benefits of credit union accounts can differ from those of bank accounts.

Because credit unions focus on members, not shareholders, they often pay higher dividends than banks pay in interest. At HFS FCU, we offer competitive dividend rates to help your money go further.

Why Credit Unions Can Offer Better Rates

Think of credit unions and banks the same way you think of public and private corporations. Banks, like publicly traded companies, are under pressure to do right by their shareholders and make money, while credit unions, like private companies, are focused only on their members.

Because credit unions are not-for-profit, member-focused entities, they make a point of reinvesting in their members by offering better rates and lower fees. With credit unions, there is also more flexibility in offerings and rates. One example is in the case of share certificates vs. CDs. Share certificates are essentially the credit union version of CDs, offering high dividend rates and serving as a secure investment strategy.

Credit unions also take a community-focused approach, working to benefit the communities where their members live and work.

Fees and Minimum Balance Requirements

Some other key benefits of credit union savings accounts compared to banks are:

• Minimal or zero monthly maintenance checking and savings account fees, while banks may charge up to $25 per month.
• Lower minimum balance requirements on most credit union accounts.
• More flexibility when it comes to overdraft fees, ATM fees, and other common charges. Some credit unions have even completely eliminated overdraft fees or offer ATM reimbursements when members use non-network machines.

Hidden Costs to Watch For

Whether you’re banking with a credit union or a conventional bank, there are various hidden costs that can erode your savings. Some of these hidden costs you should be aware of include:

• Monthly maintenance fees: Some banks charge up to $25 per month, while credit unions rarely charge more than $10. Many, including HFS FCU, have eliminated fees on savings and money manager accounts.
• Excessive withdrawal fees: Some banks may charge anywhere from $3 to $5 per transaction for too many withdrawals within a statement cycle.
• Out-of-network ATM fees: With non-network ATMs, you may pay a fee to withdraw cash. Credit unions use shared ATM networks, giving members access to thousands of ATMs nationwide without fees.

Are Credit Unions Better for Savings Accounts?

If you’re looking for higher dividends, lower maintenance fees, more personalized service, and a community focus, credit unions are better than conventional banks for savings accounts. This is a common takeaway in the credit union vs bank discussion, particularly for members who also want access to fair personal loans and everyday personal finance support.

However, keep in mind that credit unions have membership requirements (learn how to join a credit union here), which may disqualify many people. Furthermore, credit unions are regional and don’t have the national footprint that most banks do.

Overall, credit unions typically provide superior value—primarily through better rates and service—compared to traditional banks. Keeping this central distinction in mind will help you find the best savings solution.

The Credit Union Difference: Member-First Banking

Credit unions serve members, not shareholders, allowing them to provide superior service compared to banks. They focus on helping members succeed financially and support local communities. Joining is easy if you meet the membership requirements.

Safety and Security: Is Your Money Protected?

Whether you bank with a credit union or a bank, your money is safe. Credit union deposits are federally insured by the National Credit Union Administration (NCUA) up to $250,000 per depositor—the same coverage as FDIC-insured banks. Security shouldn’t be a concern when evaluating savings account features.

Accessibility and Convenience

Though credit unions may not have the national footprint that many banks do, it’s still easy to access your funds when you need them. Many credit unions have created shared branching networks to expand access nationwide, and online banking, mobile apps, and automatic bill pay make it easy for members to stay connected to their money.

Many credit unions also have surcharge-free ATM networks, expanding access for members.

Start Growing Your Savings with HFS Federal Credit Union

Ready to experience the credit union difference and see how your savings can go further? HFS FCU is here to help. As Hawaii’s premier credit union since 1937, anyone who lives, works, worships, or attends school on the island of Hawaii is eligible to join and experience all the benefits we have to offer.

If you qualify, visit your local branch or open a savings account online now. Don’t wait—contact us today and start experiencing the HFS difference firsthand.

FAQs

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

Opening a savings account at a credit union usually means better rates and lower fees than at a bank, since credit unions are member-owned and banks are for-profit.

Are credit union savings accounts FDIC-insured?

Credit unions are not typically FDIC-insured; however, they are insured by other reputable governing bodies, such as the National Credit Union Administration (NCUA). The NCUA provides the same level of protection as the FDIC for savings, checking, and certificates of deposit.

Do credit unions pay higher interest rates on savings accounts than banks?

Yes, that’s one of the biggest advantages of banking with a credit union over a conventional bank. Credit unions are non-profit financial institutions that take a member-focused approach. This is often reflected in better rates and lower account fees.

What is the difference between dividends and interest on a savings account?

Banks tend to pay interest, while credit unions pay dividends. Banks pay interest because they’re using your money, and dividends are paid to credit union members as a share of profits. Interest rates tend to be fixed, while dividends vary based on the credit union’s profits.

Can anyone join a credit union to open a savings account?

Many credit unions are not open to the public and instead require members to meet residential or employment requirements in order to qualify. However, after you join a credit union, you’re often a member for life, regardless of whether you move or change jobs.

Are there fees associated with credit union savings accounts?

There may be fees with credit union savings accounts, but these tend to be low and manageable. Credit union savings account fees are often lower than those at banks.

What is a share savings account at a credit union?

A share savings account is essentially the foundational savings account that establishes initial membership. Think of it as the minimum requirement to set up your membership.

How do I open a savings account at HFS Federal Credit Union?

If you are eligible for membership and want to open a savings account, just visit your local branch with a valid photo ID and a minimum opening balance of $50.00.