A Kids Guide to Banks and Credit Unions

Banks keep your money safe and provide a variety of financial services. Credit unions are very similar to banks, but they are not-for-profit institutions owned by their members.

You’ve probably been to the bank or credit union with your parents at least a few times – when they got cash from the ATM, made a deposit at the counter, or talked to someone who worked inside about opening an account. Both banks and credit unions help people store, manage, and access their money safely. But there are some differences between banks and credit unions, and even between regional or national banks and community banks. Ready to learn more? Let’s get started.

What Are Banks and Credit Unions?

Banks and credit unions are businesses that keep your money safe and offer a bunch of different financial services. People visit them to deposit money, withdraw (take out) money, open checking and savings accounts, apply for a loan, and more.

When it comes to banks, there are two types. Large regional and national banks have branches in many different locations. Smaller community banks have only a few branches in one specific area.

Credit unions are similar to banks in the products and services they offer. The main difference is that they are owned by their members. Anything the credit union earns, they reinvest in members – in the form of lower fees and better loan and savings account rates – or in their communities. 

So, what are the key differences between these money-managing organizations?

	National/Regional Bank	Community Bank	Credit Union
Owned By	Stockholders/investors	Local owners/investors	Members
For Profit?	Yes	Yes	No
How Profits Are Used	Shared with stockholders	Reinvested in the community through loans and other financial services for local individuals, families, and small businesses	Member and community benefits through: Lower feesBetter ratesMore ATMsLocal discountsCommunity support and donations
Extensive Financial Products and Services?	Yes	No	No
Close Relationships With Customers/Personalized Service?	Less likely	Yes	Yes
Actively Involved in Local Community Organizations and Activities?	Sometimes	Yes	Yes
Credit and Loan Eligibility	Strict eligibility requirements	Works with all customers, even those with imperfect credit	Works with all members, even those with imperfect credit
Savings Interest Rates	Tend to be lower	Tend to be higher	Tend to be higher
Fees	Tend to be higher	Tend to be lower	Tend to be lower
Deposits Insured?	Yes	Yes	Yes
Technology	Advanced technology and comprehensive mobile apps	Technology that might not be as advanced as big banks	Technology that might not be as advanced as big banks
Online Banking	Yes	Yes	Yes
Membership Requirements?	Typically no	Sometimes	Yes

Why Community Banks and Credit Unions Matter

When you put your money in a bank, the bank combines it with other people’s money. Then, the bank uses that money to give loans to people who need money. Banks earn money on those loans, and this is called interest. So, banks help you by keeping your money in a safe place. They help other people by lending them money. But they are also earning money – a profit. Smaller community-based banks are more likely to reinvest these profits back into organizations and activities in your community than bigger national or regional banks. 

Community banks tend to know their customers and provide more focused, personalized attention. Credit unions are owned by their members, and members elect a board of directors who will ensure members’ interests and goals are kept in mind. Both community banks and credit unions are often involved in community groups and activities – offering financial support, volunteering, and serving on boards of organizations that matter to their customers. Because they know their customers or members better, requirements for things like getting a loan may be a little less strict than what you’d encounter at a larger institution.

Credit unions and community banks often offer lower interest rates on loans (what members pay to borrow money) and pay higher interest rates on savings accounts (what the credit union pays members) than bigger banks do. Even though credit unions and community banks may not have as many branches and ATMs, they often work with other small banks or credit unions to offer free ATMs and financial services if you’re traveling.

Both community banks and credit unions pride themselves on understanding and meeting the unique needs of their communities. Employees are more likely to get to know customers or members – and their families. This helps employees guide customers or members through financial decisions and find the accounts, loans, and other products or services that will best fit their lives and help them meet their goals.

Banks and Credit Unions: A Recap

So, you’ve learned the similarities and differences between big banks, community banks, and credit unions and how they all keep your money safe and easy to manage. Each has advantages, depending on what you need and how you want to manage your money. They all work to help your family and neighbors do more with their money.

Now you’re ready to talk to your parents about setting up your own checking and savings accounts, getting a debit card, using ATMs, and managing your money like a pro at your family’s bank or credit union.