What’s The Difference Between A Bank and A Credit Union

Although credit unions and banks are similar in that they provide many of the same services, it’s a good idea to grasp the differences between the two. Knowing how each of these entities operates will help you make a more informed decision about which financial institution you’d prefer to use. 

Who Owns Credit Unions? Who Owns Banks?

The customers own credit unions, usually referred to as “members.” When you have an account at a credit union, you’re considered an owner and receive the privilege to vote on issues regarding the credit union. On the other hand, banks are owned by for-profit corporations and have governing boards that vote to make business decisions for the corporation’s profit. 

What Do Credit Unions and Banks do With-Profits?

If you bank at a credit union, this is good news. When your credit union experiences a profit, it will be split among its members, so you’ll get a piece of that profit. A bank’s profits go to its owners. 

Costs of Operations

Overhead is lower at credit unions because profits are always split with its members. Also, banks are required to pay federal and states taxes since they are for-profit corporations. 

Differences in fees

Credit unions typically don’t charge monthly fees on checking or savings accounts and charge low fees on loan applications. Banks, however, make a huge chunk of profit off their $5 to $10 per month checking account fees.

Credit unions tend to offer loans at lower interest rates than banks. Banks charge higher interest rates to increase the profits to the corporate owners. Also, as banks are required to pay both federal and state taxes since they are for-profit, banks’ overall fee structures tend to exceed those of credit unions. 

Who Provides Oversight of Credit Unions and Banks?

Credit unions are regulated, governed, and insured by a different government body called the National Credit Union Administration, NCUA. On the other hand, banks are regulated, governed, and insured by the Federal Deposit Insurance Corporation, FDIC. Both regulatory bodies insure an individual’s accounts at the affiliated institution up to $250,000. 

Do the Services Provided by Credit Unions and Banks Differ?

Banks tend to focus their services on providing business people with accounts to run their businesses. Also, banks provide banking accounts and services for consumers as well. Many banks offer trust services, which means they take charge of estates after the estate owner’s death and manage the estates for the deceased.

Credit unions, however, focus on their members as the primary receivers of their services to whom they provide various checking, savings, and money market accounts and offer loan services. 

Which Financial Institution Provides Better Customer Service?

Although you could find people to argue each side of this question, you’ll often hear that people who bank at credit unions will “never go back” to a bank again. Credit union members tend to enjoy no monthly fees on their personal banking needs and receive personalized service.

Credit union employees are often trained to call their members by name and treat everyone the same, regardless of the amount of money in their accounts.

Banks also have loyal customers who would not consider switching to a credit union and appreciate the supportive business atmosphere that banks provide. 

Summary

When determining where to place your money and do your financial business, consider the institution’s ownership, fees, and what the institution does with profits. Once you weigh out all the above factors, you’ll be better able to place your money into the best financial institution to help you meet your financial goals.