What is the Difference Between a Credit Union and a Bank?
Credit Union & Banks: What You Need to Know About Each
At first glance, a bank and a credit union may appear to be the same thing. They are both financial institutions that offer everything from loans to deposit accounts; however, there are some significant differences between credit unions and banks.
Even though banks and credit unions function in a similar fashion, you will encounter different jargon. For example, you are a “customer” or “account holder” at a bank and a “member” at a credit union. Banks offer checking and savings accounts while credit unions typically refer to these accounts as share drafts and share accounts.
Banks are for-profit institutions. In order to provide earnings to their shareholders, banks typically offer lower interest on savings products and charge higher interest and fees on loans and other services. The drive for profits also serves as an incentive for banks to offer a wider range of features, products, and services. Credit unions, on the other hand, are not-for-profit entities. You may not have as many branches, ATMs, and other services, but you typically get better rates on loans and savings products. Any money that a credit union receives in excess of its operating costs is returned as a divided to every member with an account.
Ownership and Control:
As an account holder at a bank, you have no input into the day-to-day management or operation of the bank. These decisions are made by the board of directors according to what it believes is in the best interest of the shareholders. As a member of a credit union, you are considered a part owner. Each member has an equal say in the selection of the board of directors and can influence the decisions that are made.
Banks have broad discretion over who can become a customer. Credit unions define their field of membership in their charter. To join a credit union, you generally must be able to demonstrate one of the following:
- You work for a specific employer.
- You are a qualified family member of another member.
- You live, work, or attend church or school in a particular geographic area.
- You belong to a specific organization.
Both banks and credit unions are federally regulated. Credit unions are regulated by the National Credit Union Administration. The Federal Deposit Insurance Corporation is an independent agency that federally guarantees deposits at banks.
At The Credit Repair Company, we are always happy to answer your financial questions. Contact us today so that we can help you achieve a brighter financial future.