In this blog post, i will educate you on the major difference between banks and credit unions, and also their similarities.
First let’s start with the definition of a bank and also a credit union and from the definition you can still get the difference between the two.
What is a Bank
A bank is a financial establishment that uses money deposited by customers for investment, pays it out when required, makes loans at interest, and exchanges currency. You can also define bank as an establishment authorized by a government to accept deposits, pay interest, clear checks, make loans, act as an intermediary in financial transactions, and provide other financial services to its customers.
What is a Credit Union
A credit union is a non-profit-making money cooperative whose members can borrow from pooled deposits at low interest rates. Or you can say that credit union is a member-owned financial cooperative, democratically controlled by its members, and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members.
From these definitions you will see the big or major difference between banks and credit unions. Bank accepts deposits whilst credit unions doesn’t, bank is a financial institution whilst credit union isn’t.
Not only looking at the difference between banks and credit unions, we will also see their key benefits. Banks, depending on their charter, can serve anyone who comes through the front door. Typically, credit unions can accept membership only through companies or associations with which they are affiliated. However, some credit unions, like all banks, have come to serve a particular geographic area through what is known as a community charter. Both institutions provide business services, but banks surpass credit unions in this line of business.
Banks and credit unions, though similar and laced with similar products and services, provide Americans with distinct financial service alternatives. Some suggest the two will look similar in the future, with credit unions being stripped of their tax-free status and having the ability to raise secondary capital.
Difference Between Banks and Credit Unions
Below are the major difference between banks and credit unions;
There are two essential difference between banks and credit unions. First, a credit union is a not-for-profit organization. As big banks bloat to mammoth proportions with record profits based on a “too big to fail” platform, the not-for-profit nature of credit unions may be their most compelling feature of all.
The second major difference between banks and credit unions is that banks are giant corporations controlled by ultra-wealthy board members, while credit unions are member-owned. That’s right, join a credit union and you’re an owner. Now that doesn’t mean you get a big corner office with your own miniature putting green, but it does give you a sense of ownership and pride, for what that’s worth.
If you’re a fan of small businesses, credit unions may also float your boat. As the CUNA notes, each of the nation’s four largest banks are larger than the entire credit union industry as a whole.
The key philosophy behind credit unions and banks is different. The banks operate for the aim of generating profits while credit unions are community-based institutions which run as non-profit. The concepts of banks are very old whereas the credit union history dates back to the 19th century. Initially, credit unions were established as worker’s cooperatives to help them to solve their financial problems.
Another difference between banks and credit unions is that in a credit union, if you want to be a depositor, then you need to have a membership first. In applying for a membership, you need to have a simple account with minimum deposits. Each member becomes a part owner in the credit union and is entitled to receive shares based upon his contributions. Thus, people having large amounts of funds get a higher number of shares and can receive a larger share of the profits.
The Board of Directors of a credit union are comprised of volunteers or elected members who participate in major financial decisions and elections; whereas a bank is owned by a private company. The bank’s Board of Directors is appointed by the company or shareholders. Depositors receive some amount of interest on certain types of accounts.
Credit unions encourage people to save, promote thrift, and also encourage them to use money wisely. Banks, on the other hand, are least interested in all the above-mentioned issues.
Credit unions are more personalized and friendly in service, and their strength lies in connecting with the community. Banks are standardized to a high degree, and their focus is on professional services with consistency not essentially customizing the services according to their clients.
Credit unions usually finance small projects related to community development and try to keep money within the community. Banks, on the other hand, tend to finance large and mighty projects. The interest rate charged by banks is a bit higher than what credit unions charge.
The last but not least difference between banks and credit unions is that a credit union’s area of work is not as large as a bank’s. Banks are usually based locally and have multiple branches across a large region.
These are the major difference between banks and credit unions, All of these facts must have helped you to reach a better conclusion.