Both community banks and credit unions are popular alternatives to big national banks. There are, however, a number of important differences relating to their structure, rates, insurance, services, security, and accessibility that those considering switching banks should know about.

Customers of traditional banking establishments are starting to get fed up with being treated like a number in a bureaucratic maze. This has been reflected in a rising interest in whether community banks are a better choice for mortgages, loans, and other financial products.

What are community banks?

A community bank is a financial institution that offers many of the same services as a traditional bank, just within a much smaller geographical area. They are a core part of their community, not just for the jobs and services they provide, but also the charitable schemes and special localized products they offer. Despite their smaller size they still offer most of the same services that national banks do such as checking accounts, savings accounts, loans, and credit cards.

First Merchants is a community bank that operates across Indiana, Michigan, Ohio. Other community banks may be more limited in their scope and operate within a single state.

According to data from Morningstar, there are over 4,000 community banks active in the United States, representing 90% of all U.S. banks. They are a popular and more caring alternative to national banks. This makes them well-liked not only by individuals seeking a more personal solution to their financial problems, but also by small- and medium-sized businesses looking for an expert touch in a local landscape.

Considering a community bank?
Speak to First Merchants

What is a credit union?

A credit union is a nonprofit financial cooperative that is directly controlled by its members. The money they provide is primarily pooled by its members rather than generated through fees and interest rates (although these still exist).

Credit unions started out serving members of a specific trade or other commonality. Over time, they have evolved to become more open, although many credit unions are still difficult to become a member of unless you meet certain professional, personal, or geographical requirements.

Credit union vs community bank: key differences

The key differences between credit unions and community banks include the way they are structured, the services and rates they offer, their accessibility, their security and the insurance they are covered by.

Structure

How community banks are structured Commercial objectives with a focus on community investment. Structured with top-down decision-making.

How credit unions are structured Profits re-invested back into the union. Decision-making process controlled by members.

Eligibility requirements

Eligibility requirements of a community bank Anyone is eligible to use a community bank. Opening an account is straightforward and familiar.

Eligibility requirements of a credit union Restricted eligibility requirements. Joining a credit union often requires you to work in a certain industry or have family connections.

Technology and security

Technology and security at a community bank Typically, a higher level of technological investment. Wider range of customer support services. Likely to offer secure online and mobile banking.

Technology and security at a credit union Typically, more limited technological scope. Less likely to offer fleshed out and secure online banking.

Services

Services offered by a community bank Offers services to cover nearly all banking needs, including mortgages and wealth management. Tailored services and products that suit their local market, such as First Merchants agricultural lending solutions. Strong small-to-medium sized business loan options.

Services offered by a credit union Offers most of the standard features of a traditional bank such as checking accounts. Some services may be stripped back, such as mortgage or vehicle loans. Typically more limited business loan options.

It should be noted that the services offered by a credit union can vary a lot depending on their size and scope. Larger credit unions will offer most of the same services that a traditional bank offers.

Fees and rates

Fees and rates at a community bank Standard fees and rates. May offer lower rates to support the local community, such as First Merchants’ Next Horizon mortgage.

Fees and rates at a credit union May offer low fees. Operations model can create competitive rates.

Accessibility

Community bank accessibility Wide network of ATMs and brick-and-mortar branches. Convenient for withdrawing physical cash. In-person expert financial advice.

Credit union accessibility Significantly smaller physical presence. May be part of the CO-OP Shared Branch network.

Insurance

Community bank insurance Insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC provides protection for $250,000 per depositor.

Credit union insurance Insured by the National Credit Union Administration (NCUA.)

Should I use a credit union or a bank?

Both credit unions and community banks are alternatives to traditional large banks. The question of which one to use depends on your individual needs. For example:

A community bank might be right for you if:

• You are a small-medium sized business: Community banks tend to provide more business-related services like, SBA lending.
• You require financial advice: Community banks are more likely to employ financial experts who can help guide you on your business or personal finance journey.
• You want to retain a traditional banking experience: Community banks are better suited to those who want more of a traditional banking experience, just with an emphasis on strong relationships—both with their bank and the wider community.
• You want online banking solutions: If you are after a modern banking experience with all the technological bells and whistles such as apps, budget calculators, and educational resources then community banks are also the ideal choice.
• You like to visit banks in person: Community banks usually have more of a physical presence in terms of brick-and-mortar branches and ATM access.

A credit union might be right for you if:

• You meet the membership requirements: If you are able to qualify for a certain credit union that meets your financial needs due to your industry, region or background you may be able to access advantageous rates.

Learn how First Merchants bank can serve you and your business needs by booking an appointment today.

Discover community banking
with First Merchants today!