Credit Unions vs Banks
A credit union is defined as a financial institution formed by an organized group of people sharing a common bond. Credit unions as they are known today began as “credit cooperatives.” These cooperatives were formed as a means of providing credit to individuals to purchase items such as livestock, equipment, and even bread at a substantially lower interest rate than was being charged at other banking institutions. These cooperatives were not out to make a profit, but to serve the needs of their membership. Over the years, credit unions have formed to service industries, corporations, communities, and churches. They provide financial services that mirror a bank, but are generally smaller, more personal financial institutions. Credit unions serve a specific membership and cater to their specific needs.
Credit unions have grown and developed over the last century and have become fiercely competitive with banks. Credit unions offer checking and savings accounts, just like banks. Credit unions offer installment loans, mortgages, and credit cards, just like banks. And credit unions are federally insured, just like banks. However, by joining a credit union, an individual is not simply a customer, but a member and joint owner of the credit union. As a member, individuals have the right to both vote and run for the Board of Directors. The Board of Directors is comprised of credit union members who donate their time on a volunteer basis. Unlike banks, a credit union board of directors is not a paid position. This member-serving board of directors guarantees that the credit union is looking out for the interests of its members.
Another key difference in comparing credit unions to banks is their profit status. While banks are for profit organizations using their resources to maximize their earnings (often at the expense of the customer), credit unions are not-for-profit, using any earnings to provide lower fees, lower loan rates, higher deposit rates, and dividend sharing. Though credit unions can and do make excess earnings, the money belongs to the members, not stockholders or management.