What are some of the major differences 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 different 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 meetings where you're going to come and you're going to vote on board [of directors] members and things like that. ... We are for-profit 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 financial service platforms such as CashApp, Venmo and Chime differ 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 dependent 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]. They offered the advantage of having really good apps so you can manage your money. Most [community] banks had an online portal of some sort, but not too many of them actually had full operating apps that offered 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 connection 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 organization that's also going to provide service to the community.
What should customers consider when deciding which financial institution works best for their financial 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 offering 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 offer products that are more geared toward small business owners.
Cotton: Do your research first. You definitely have multiple options when it comes to credit unions, especially locally. ... What's going to work best for you? ... See what a credit union is going to offer you—the best rate on the vehicle that you want to buy; the best dividend on the certificate that you need. Maybe you have money that you want to put away for a long period of time. Who's going to offer you the best rate for that length of time, or who's going to offer you the most convenience to access that money?
What best practices do you have for customers opening a bank account or credit union for the first 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 first 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. ... They typically hold some classes, and these are all free, where they invite their customers—it doesn't matter if you have $10 in your account or you have millions sitting in deposits—so that you can know how to build your credit, how to improve it. ... All of these things are there so that people can succeed. ... 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? What are the requirements [for] starting an account at the credit union? ... What do you do if I need to go out of town and use my debit card? What do you require when I'm applying for a loan? Just asking those questions. What happens if I have fraud on my account; how am I protected? ... 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.
