Credit Unions Vs. Banks: What is the Big Difference?
Why choose a credit union over a bank? What are the advantages? These are commonly asked questions. Many people do not understand the difference between the two establishments. Therefore, they do not know which will best suit their needs. Both banks and credit unions are financial institutions, but that is about all they have in common.
First let’s explore banks. Banks do have some positive attributes. They are regulated by the government. Depending on their charter, they are either regulated by the federal or state government much like credit unions. Banks are also FDIC (Federal Deposit Insurance Corporation) insured. Knowing that these regulations and insurance are in place makes most people feel safer having their money at these institutions.
However, banks are also “for profit” organizations. Their main objective is high profits. As a customer of a bank, you are a means to an end. This does not mean that you will not get good customer service and be treated well. What it does mean is your business is supporting the overall financial well being of the stockholders or “owners” of the bank. And banks have been so successful at making a profit that they have set record profit levels in the past decade. Lower profits for a bank means higher fees, higher loan rates or whatever it takes to get their profit margin back up.
Credit Unions, on the other hand, are a “not for profit” organization. Their main objective is servicing their members with quality member service, lower fees and loan rates. They too are regulated by the federal or state government, also determined by their charter. They too are insured, only they are supported by the NCUSIF (National Credit Union Share Insurance) which many feel to be a stronger fund than the FDIC.
Credit unions are owned by their membership. In order to become a member, you must be eligible and this varies by individual credit union. Once you have an account at a credit union, you are a member and an owner. You can run for the Board of Directors, have a voice in how that credit union operates. Because of this, credit unions work for the best interest of their members. While it is true that credit unions can and do make a profit, these profits are turned into lower loan rates, lower fees, all of which benefit the members.
In conclusion, when looking at which financial institution you want to use, you must decide how you want to be viewed. If you want to be viewed as more than a dollar sign, a credit union is a great way to go. Because you are an owner, your voice will be heard. You will be the most important thing, not high profits.