Credit Unions vs. Banks: Safety in a Financial Crisis

During times of financial uncertainty, it’s normal to fret about the safety of your own money. Naturally, you want to be absolutely sure that your own savings will be secure, even in times of financial crisis. 

Credit unions offer unique advantages that can provide greater security and peace of mind during financial downturns. Here’s why a credit union can be a better choice than a bank during a financial crisis.

Member-owned and operated

One of the primary differences between credit unions and banks is their ownership structure. Credit unions are member-owned cooperatives. This means that, when you open a share account at a credit union, you become a part-owner. In contrast, banks are typically owned by shareholders who may not even be customers of that bank. 

During a financial crisis, this member-owned model can work in your favor. Credit unions prioritize the needs and interests of their members instead of focusing on maximizing profits for shareholders. This often translates into more personalized service and policies aiming to support members through tough economic times.

Nonprofit status

Credit unions operate as not-for-profit organizations. Unlike banks, which seek to generate profits to pay their shareholders and board members, credit unions reinvest surplus earnings back into the institution and their member-owners. This reinvestment can take the form of lower fees, better earnings rates on share accounts and lower loan rates. 

In times of financial crisis, these benefits can be crucial. Lower fees and better rates mean you can keep more of your money and reduce the cost of borrowing. This can be especially beneficial if you need a loan to manage financial difficulties or if you want to maximize your returns.

Greater stability and lower risk

Credit unions and banks are both insured, with most banks insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per customer. Most credit unions are similarly insured by the National Credit Union Administration (NCUA) for up to $250,000, and many are privately insured, too. However, banks are more likely to have extremely large depositing customers that fall well beyond the insured amount. This can leave the banks scrambling if many wealthy customers withdraw their uninsured funds during a financial crisis.

In addition, credit unions tend to take lower risks compared to banks. They maintain conservative lending practices and focus on member services rather than profit. 

Stronger community ties

Credit unions are typically community-focused institutions. They often have strong ties to the local areas they serve and a deep understanding of the specific financial needs of their members. This community focus can translate into more tailored and supportive services during a financial crisis.

Personalized service

Having access to personalized, empathetic service can make a big difference in a financial crisis. Credit unions, with their smaller size and member-focused approach, are often able to provide more personalized service compared to large, impersonal banks. In addition, credit union staff is typically more accessible and willing to work with members on an individual basis to find solutions to financial problems.

Better loan terms

Credit unions typically offer more favorable loan terms than banks, which can be particularly advantageous during a financial crisis. Lower interest rates, reduced fees and more flexible terms can make it easier to manage debt and maintain financial stability.