What is the difference between credit unions and banks?
Credit unions and banks are more similar than they are different. Both are financial institutions which offer a variety of services to their depositors, ranging from savings accounts to home loans. However, the underlying philosophy behind banks and credit unions is different, with the key distinction being that banks are run for the purpose of generating profits, while credit unions are generally run as non-profit, community-based institutions. The practice of banking is ancient; for almost as long as people have had money, bankers have been present to deal with it. Credit unions date to the 1900s, when they were initially established as workers cooperatives. In the 20th century, several industries began creating their own credit unions, allowing members of specific industries or employees of particular businesses to enjoy credit union membership, and credit unions were also opened more generally to the public. In a credit union, people must be members in order to become depositors. M
• Credit unions are member-owned and not-for-profit organizations, and members directly benefit from profits incurred by the credit union (after covering overhead costs). Banks are for- profit organizations which serve the primary purpose of making money for the investors and stock holders. Customers of banks hold no decision making power within the institution. • Credit unions offer most of the same services as banks; and often at better rates, low or no fees and with superior member service. Also, some of the services offered by banks are named differently at credit unions. For instance, a share draft account compares to a checking account, share certificates compare to certificates of deposit, and regular share accounts compare to savings accounts. • Many smaller credit unions offer only basic services. Loans to members are a credit union’s biggest investment (mostly home and auto loans). However, larger credit unions, such as United Federal Credit Union, provide full financial serv
A credit union is a not-for-profit financial cooperative. Each credit union is chartered to serve only a select field of membership. Account holders are referred to as members and are part-owners and shareholders of the credit union. They share in the earnings of the credit union through their dividends and elect the Board of Directors who set policy and make decisions about the credit union. Banks are different. Anyone can use their services if he/she has sufficient money to open an account. Account holders are customers. For the use of their money, customers receive interest on their funds. However, the bank’s earnings are passed along to the stockholders of the bank. These stockholders elect a Board of Directors. Thus, the customers have no say about the management of the bank.
