What is the difference between banks and financial institution

Commercial banks offer more products and service offerings. Commercial banks offer every banking service which a small banking company would offer also CDs, investment accounts, commercial real estate loans, even mortgage plans and the option to have a debit card, credit card or both.

Online Banking. With the increasing growth of technology, commercial banks also offer their services online. Customers can keep track of their checking and savings accounts, transfer money to either of their accounts, also pay bills or apply for a loan over the internet itself. Electronic Banking. By using the hour ATMs, customers can withdraw or deposit money and also can access their account information or transfer their funds.

The limitations with these financial institutions are as follows:. Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can. Banks and credit unions are both financial institutions that offer products and services — such as checking accounts and loans — to help you manage your money.

But while banks are for-profit institutions anyone can do business with, a credit union is a nonprofit that only offers services and products to its member-owners. While these two institutions offer many similar products, there are fundamental differences in how they operate. The table below provides some basic insight into the difference between credit union and bank products and services.

Both banks and credit unions also typically offer direct deposit , mobile banking, ATMs and overdraft protection.

While the two financial institutions typically offer consumers the same products and services, there is a big difference between a credit union and a bank — and it all comes down to how the two do business and why they exist. Banks are for-profit institutions. And most are very profitable. Banks pay taxes on the profits they earn, and many are publicly traded companies with paid board members to answer to.

A mortgage loan may seem like a service, but it's actually a product that lasts beyond the initial provision. Stocks, bonds, loans, commodity assets, real estate , and insurance policies are examples of financial goods.

Traditional banks offer both financial services and financial goods. Clearly, the bank is a provider of financial services and should be considered part of the financial services sector. Even the federal government includes banks in its description of the financial services sector.

The Department of Homeland Security suggests that small community banks and credit unions are also part of this sector. A financial service is a temporary task rather than a tangible asset. There are many members of the financial services sector that are not banks, though. Investment agencies and stock market brokers are not banks, but they certainly provide financial services.

Their services are only intermediate services, not end goods. This distinction is similar to how economists distinguish between capital goods and consumer goods ; an orange can be a consumer good if it is directly eaten by a consumer, but it can also be a capital good if a deli owner uses the orange to make juice.

In a more aggregate sense, the banking industry is most concerned with direct saving and lending while the financial services sector incorporates investments, insurance, the redistribution of risk, and other financial activities.

Banks earn revenue primarily on the difference in the interest rates charged on loans or other forms of borrowing and the rates paid to depositors. Financial services primarily earn revenue through fees, commissions, and other methods. International Monetary Fund. Department of Homeland Security. Accessed June 7, Loan Basics. Wealth Management. Actively scan device characteristics for identification. This is one of the reasons why you will often find that banks charge more fees, and at a higher rate, than credit unions do.

Interest rates on lending also tend to be higher at banks, while their APYs on savings products tend to be lower. While the fact that credit unions are not-for-profit and member-focused may make them sound like the clear winner compared to banks, there are a number of reasons why consumers may choose banks.

Credit unions are only open to members, and you may not be eligible for membership if you or a member of your household does not belong to the community served by the credit union. This makes banks an easier choice for many consumers who lack any specific affiliation with a community served by a credit union, although some credit unions do allow you to become a member simply by paying a nominal membership fee. Banks generally have more branches and ATMs available, as compared to credit unions.

This added convenience makes it easier to access your money from a bank, since you may be able to find branches and ATMs throughout your city, state and even nationwide. That said, credit unions often partner with other co-ops to provide additional branch availability and access to fee-free ATMs nationwide. Banks usually surpass credit unions when it comes to financial technology.

Finally, while both banks and credit unions offer many of the same kinds of products, banks are likely to offer a much wider array of options. For instance, not all credit unions offer commercial loans, even though such loans are a standard part of bank offerings. Credit cards offered through banks also are likely to provide more and bigger perks to cardholders when compared to credit union cards, which tend to be a bit more bare-bones.

As a cooperative financial institution, a credit union puts its members first. This means credit unions are known for their excellent customer service. When a member goes into a credit union branch, they can generally expect to get personal attention and a commitment to getting their needs met. In addition, your membership to a credit union is good for life, even if you leave the organization or community served by the credit union.

Credit unions also provide their members with necessary financial education as part of their services. In addition to the types of online articles and tools that you can find on many banking websites, many credit unions also offer in-person seminars on important financial topics, such as managing credit cards, preventing identity theft, buying a home, planning for retirement or estate planning. The biggest benefit to credit unions is financial.

So how does the average credit union member see such benefits? To start, any profits that the credit union sees will be distributed to its members in one of two ways: either by earning interest on their deposit accounts or by receiving dividend checks periodically.

In addition, the fact that credit unions are not-for-profit also means that they often have no minimum balance requirements, lower deposit requirements to open accounts and lower overdraft, non-sufficient fund and ATM fees. Finally, you are likely to receive lower interest rates on loans from a credit union, compared to a bank.