4 Key Differences Between Banks and Credit Unions

There are a few key differences between banks and credit unions, although they are everywhere, many people do not know the difference between them because they both perform basic functions like checking, savings, and loans.

1. Ownership

While banks and credit unions may look similar on the outside, the way they are established is very different. Banks are for-profit corporations that are owned by private investors. Their accounts are backed by the government up to $250,000 each. Banks are governed by a board of directors that are usually picked by shareholders in the bank. They are governed just like any other for-profit business with stockholders. Everything is done with the shareholders in mind. 

On the other hand, credit unions are non-profit organizations and they are owned by the members. When you put your money into a credit union, you are actually becoming a partial owner of the company. In that sense, the shareholders are actually the ones that have their money in the bank. All the money that the bank makes is actually paid back to the members of the credit union as a dividend. Credit unions tend to feel more like a community endeavor than a cold, faceless business.

2. Lending

Banks and credit unions also differ in the way that they lend money. Banks tend to focus on business accounts, trusts, and consumer accounts. Credit unions put a special emphasis on consumer lending.

Credit unions use the deposits that they receive from members to make many short-term loans. Many times, you can get funding from a credit union for projects that would not work with a traditional bank. With the credit union's attention to short-term lending, you have more options in front of you. The main way that they make their money is from short-term loan interest. Therefore, they are more than willing to do business with you if you can demonstrate the ability to pay them back. 

3. Interest Rates

Interest rates at a credit union tend to be lower than those offered at traditional banks. Since credit unions are non-profit organizations, they are tax exempt and typically pass on the savings to their customers. Banks have to charge a little bit more for their interest to make up for the difference. 

4. Service

The service that you receive is typically a little different between banks and credit unions. Banks have a numbers game approach and will see as another number. They know exactly how much money they can make off of you and treat you accordingly. They know a certain amount of accounts will be lost and gained each year. Therefore, they don't have as much interest in approving you for that loan you need.

Credit unions are a shared endeavor and you are actually part owner in the company. The credit union knows this and will treat you accordingly. You will be viewed as a person and as an equal in the business. Even small things like overdraft fees are typically cheaper at credit unions. While the variation in service might be slight, there is usually a noticeable difference.

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