Business
BY BRITTANY ANDERSON
Finance experts explain di erence between credit unions, banks As the Austin region grows with more nancial institution options, Carlos Espinosa, vice president of communications and marketing for Texas Bank- ers Association, and Pamela Cotton, vice president of member services for Austin Telco Federal Credit Union, shared key di erences between banks and credit unions and best practices for joining. What are some of the major di erences between banks and credit unions? Espinosa: They both look and operate in very similar ways, and it’s easy to get confused. ... Credit unions [are] member-focused, so that’s typically a pretty narrow scope of who the membership is, whereas banks tend to have a much broader range of the community. You’re looking at people that run the gambit from your average kid to most businesses I would say in any community, so I think the membership of banks are very di erent from credit unions. ... Credit unions are accountable to their membership, so because of that, they aren’t regulated in the same way, whereas banks are accountable to regulators. Cotton: When you’re part of the credit union, you’re a member, whereas when you belong to a bank, you’re a customer. So in the credit union, you’re a member-owner, and you have more say in what your credit union does. We have annual meet- ings where you’re going to come and you’re going to vote on board [of directors] members and things like that. ... We are for-pro t in the sense that we’re operating a business, but our earnings go back to our members in dividends, so they’ll get a better rate of return and dividends on their deposits; they’ll have better interest rates on their loans. How do online nancial service platforms such as CashApp, Venmo and Chime di er from traditional banks? Espinosa: People, I think, mistakenly categorize them as nontraditional banks, but the truth is they’re not banks, period. They’re not regulated; they’re not operating in the sense of [having to] answer to regulators. ... You’re kind of just depen- dent on whatever the leadership of that company is doing. I think the most important part to that is the fact that if your money is sitting in those apps, your money isn’t protected by [the Federal Deposit Insurance Corporation]. ... You saw the uptick and real growth in these nonbanks [during COVID-19].
Pamela Cotton
Carlos Espinosa
COURTESY AUSTIN TELCO FEDERAL CREDIT UNION
COURTESY TEXAS BANKERS ASSOCIATION
They o ered the advantage of having really good apps so you can manage your money. Most [com- munity] banks had an online portal of some sort, but not too many of them actually had full operating apps that o ered everything that you could get from going into a physical bank. ... There was, I would say, an advantage to that during COVID, and in the last two years, that gap is pretty narrow right now to almost nonexistent. Cotton: They totally rely on technology to serve their customers, but in a credit union, we have the technology but we also have that personal connec- tion where we have branch locations. Members have that immediate access to us. ... You’re a member of the credit union, but you’re also part of an orga- nization that’s also going to provide service to the community. What should customers consider when deciding which nancial institution works best for their nancial needs and goals? Espinosa: It really is more important along the lines of when you start asking the question, what is it that I want out of the institution? There’s a reason why a lot of these community banks are where [they are]. You’re not going to go to see a growing town and not see more and more banks, because they’re all o ering what the community is needing. ... Which one’s going to suit me for where I’m trying to get to? ... Data that came out of the Federal Reserve a couple of years ago showed that [about] 70% of all mid-to-small businesses bank with community banks, and that’s just because they o er products that are more geared toward small business owners. Cotton: Do your research rst. You de nitely have multiple options when it comes to credit unions, especially locally. ... See what a credit union is going
to o er you—the best rate on the vehicle that you want to buy; the best dividend on the certi cate that you need. ... Who’s going to o er you the best rate for that length of time, or who’s going to o er you the most convenience to access that money? What best practices do you have for customers opening a bank or credit union account for the rst time? Espinosa: Community banks have really adjusted and are staying in line with what’s happening today. ... I think where it’s really the biggest appeal is they really want people to come in and talk to them about what it is that you want to do. I think the rst step, if you’re up for it—if you’re really looking to learn more about what you can get out of your bank—there’s entire teams dedicated to onboarding somebody and helping them and educating them on what the opportunities are. If you’re looking for more than just setting up a place to park your money, my suggestion is always to go to a bank near you and see what you know they can do for you and how you guys can grow together. Cotton: In doing that research, it’s going to depend on where you are, and that’s the thing that we look at. Are you a student, a young teen, a young adult, middle aged or senior? Where are you in your walk in life? ... You want to look at even the stability of the credit union. ... Those kinds of things you want to know—who’s running your credit union and what they’re doing with your money.
This interview has been edited for length and clarity. For a longer version, visit communityimpact.com .
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