Credit Union vs Bank: The Important Differences
How are credit unions different from banks?
While both credit unions and banks are institutions designed to help with your financial needs, the two actually have a few very notable differences.
Would you rather be a member-owner or customer?
What is a bank?
Banks are for-profits owned by stockholders or investors. You might be asking yourself what this means if you’re a bank customer. It’s simple: any profits made by a bank are used to pay out dividends to stockholders, which means that you don’t directly benefit from being a bank customer unless you own shares of the company.
What is a credit union?
Credit unions are run in a way that benefits members directly. It all starts with the fact that credit unions are owned by their members, aka, YOU! In other words, banks are for-profit public organizations, while credit unions operate as not-for-profits.
According to the National Credit Union Administration, there were more than 5,000 credit unions with over 120 million members.
The credit union motto is “People Helping People,” and it’s no wonder because credit union members quite literally borrow money from one another. Think of the way credit unions operate as a closed-loop: members work with other members to save money so that other members can borrow that same money.
| BIG BANK | "I wanna know..." | CREDIT UNION |
|---|---|---|
| Private investors, share holders, and stock holders, none of whom are necessarily customers of the bank. | Who owns it? | All members with funds deposited at the Credit Union, and who actively use the credit union’s services. |
| Maximum profitability. Banks have led in yearly profits for years, sharing the top spots with the oil industry. | What’s its motive? | Not for Profit. Not for Charity. But for Service. That's actually the recognized credit union creed. Sums it up nicely. |
| Yes. Up to $250,000 per account by the FDIC, a federal agency enacted in 1933 to regulate & insure banks. | Is it insured? | Yes. Up to $250,000 per account by the NCUA, a federal agency enacted in 1934 to regulate & insure credit unions. |
| The FDIC uses tax money to cover bank losses. In fact, billions of tax dollars have been used by the FDIC since its inception. | Does it affect the taxpayer? | The NCUA never uses tax money to cover its losses. credit unions fund their own insurance, costing taxpayers and members NOTHING. |
| A paid governing body that oversees banking operations. Board members are appointed by bank investors and are often rewarded for maximizing proft. They can hire and fire the President/CEO. | What is its Board of Directors? | A volunteer unpaid governing body elected from amongst the membership by the very members they serve. It sets policies, oversees operations, and looks after the credit union and its members. |
Credit union field of membership
Most credit unions require that you live, work, worship, or go to school in a certain area of the credit union, while others require that you also work a certain type of job in order to qualify for membership. Meanwhile, anybody can become a bank customer.
Number of members of credit unions in the United States from 2013 to 2020 (in millions, shown in the graphic below):
Source: Statista.com
The private ownership credit unions offer members is a big reason why savings accounts are known as “share accounts” at these not-for-profits. When members take out loans at credit unions, they borrow money from other members. This also explains why members of credit unions are called “members.”
If you have an account at a bank, you’re known as a customer, not a member, because the money borrowed from loans does not come from others that are part of the organization. Banks are therefore funded by investors, just like other public businesses.
How credit unions have better loan and savings rates
Credit unions are traditionally known for having a community-feel and friendly service. They are also known for offering lower rates on loans, making them a great option if you are considering taking out an auto or mortgage loan or even if you want to refinance. Expect lower and fewer fees when you join a credit union.
While banks are known for their convenience, like having more available ATMs and branches nationwide, you’re likely to pay more interest on loans you take from a bank.
Credit unions may be limited to the region, county, or city they’re in. However, credit unions every day are implementing co-op financial services (ATMs you can easily access with no fees even if you are not a member of that specific credit union), updated mobile apps, and more. The co-op shared branch network of certain credit unions has 5,600 branches and 54,000 surcharge-free ATMs that can be used, whether you’re a member of that credit union or not.
Due to being for-profit financial institutions, banks find it hard to compete with credit unions when it comes to lower interest rates and fees. You may end up paying more in fees at a bank for errors, such as bounced checks or overdrafts. The same goes for interest rates on loans and savings accounts.
According to the NCUA, which regularly compares the rates for credit unions versus banks, credit unions produced higher interest rates on Certificates of Deposit (CDs), money market, and savings accounts while also posting lower interest rates on home and auto loans during the third quarter of 2021.
How to become a MEMBER at Granite Credit Union
Granite Credit Union is a community-based credit union that is run democratically. We offer checking and savings accounts, real estate, personal, and vehicle loans, as well as credit card services to our members. Visit our ‘Become A Member’ section to check our field of membership and apply today!
Consider what you want your financial institution to do for you, and remember to trust the organization that you choose!
