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WalletPrep worksheet · Money basics

Is a credit union better than a bank?

Name ____________________ Date __________

Key ideas

  1. Credit unions are owned by their members. Profits go back to members as lower fees, lower loan rates and higher savings rates, instead of to shareholders.
  2. Both are insured up to the same limit. The FDIC covers banks and the NCUA covers federally insured credit unions, each up to $250,000 per owner, per institution, per category.
  3. Credit unions require membership. You join through a shared link, like where you live, work or study, or a family member who belongs.

Vocabulary

Credit union
A not-for-profit financial cooperative owned by its members, offering checking, savings and loans much like a bank.
FDIC insurance
US government protection that repays your deposits if an insured bank fails, up to $250,000 per depositor, per bank, per ownership category.
NCUA insurance
Federal deposit insurance for credit unions, run by the National Credit Union Administration and backed by the full faith and credit of the United States.
APR
Annual percentage rate: the yearly cost of borrowing money, shown as a percentage. It is the number to compare on cards and loans.
APY
Annual percentage yield: the yearly return on savings, including the effect of compounding. Use it to compare savings accounts.
Field of membership
The rules for who can join a particular credit union, such as where you live, work, worship or study.

Work it out

Marcus, a warehouse supervisor, is borrowing $20,000 for 60 months. His bank offers 7.5% APR. A credit union he can join offers 6.5%. These are example rates.

  1. Payment at 7.5% APR
  2. Payment at 6.5% APR
  3. Total interest at the bank
  4. Total interest at the credit union
  5. Saved over the loan

Check yourself

  1. Who owns a credit union?

    • A. Outside shareholders
    • B. The federal government
    • C. Its members
    • D. A large bank

  2. A $10,000 loan costs $1,700 in total interest at one lender and $1,420 at another. How much does the cheaper one save?

    • A. $170
    • B. $280
    • C. $1,420
    • D. $320

  3. How does deposit insurance at a federally insured credit union compare with a bank?

    • A. Credit unions have no insurance
    • B. Credit unions are covered up to half the bank limit
    • C. Both are covered up to the same standard amount
    • D. Only checking is covered at credit unions

Your turn

Search the NCUA's credit union locator for credit unions near your home or work, and read the membership rules for two of them. Note their checking fees and current car loan APR.

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Answer key

Is a credit union better than a bank?

Work it out

  1. Payment at 7.5% APR$401
  2. Payment at 6.5% APR$391
  3. Total interest at the bank$4,046
  4. Total interest at the credit union− $3,479
  5. Saved over the loan= $567
  1. Using the standard loan payment formula, $20,000 over 60 months costs about $401 a month at 7.5% and $391 at 6.5%.
  2. Total interest is about $4,046 at the bank and $3,479 at the credit union. $4,046 − $3,479 = $567 saved.
  3. Marcus joins the credit union with a small deposit and takes its loan. He keeps his bank checking account for its ATMs.

Check yourself

  1. C. Its members Credit unions are not-for-profit cooperatives owned and controlled by their members, who elect a volunteer board.
  2. B. $280 $1,700 − $1,420 = $280 saved over the life of the loan.
  3. C. Both are covered up to the same standard amount The NCUA insures credit union accounts up to the same standard amount the FDIC covers at banks, per owner, per institution, per ownership category.