Whether you are looking for a loan, starting a high interest savings account, or seeking other financial services, you will eventually be faced with the choice of conducting your business through a bank or a credit union. It’s a good idea to know a little about the similarities and differences between the two types of financial institutions in order to make an informed decision regarding whom you will entrust with your financial affairs.
While there are many similarities between the two, banks and credit unions are significantly different in their core philosophy and mission:
- Banks are for profit corporations whose main goal is to produce a profit for their stock holders.
- Credit unions are not for profit organizations whose main goal is to provide financial services for the benefit of the sponsoring community.
Banks and credit unions offer many of the same services. You can take out a loan from either. You can open a high interest savings account in either (although it will likely be called something different at a credit union). You can perform most of the same transactions in either type of financial institution. The difference is that when you join a credit union, you become a member. In essence, you are part owner of the credit union.
So, what exactly is the difference? Most people don’t really care about the philosophical differences as much as they do about the differences where the rubber meets the road. So, here they are, in a nutshell:
- As a member of a credit union, you have a voice (a vote) in the way certain business is conducted. As an account holder in a bank, you have no such privilege.
- Credit unions typically pay higher interest on savings accounts, because they aren’t sending money to stockholders.
- Credit unions typically offer lower rates on loans for the same reason. Incidentally, some credit unions are more stringent in their credit requirements for loans because they are cognizant of the fact that they are lending out members’ money.
- Credit unions often offer members only benefits, such as opportunities to buy life insurance and sealed bid auctions on repossessed automobiles.
- Credit unions often are not able to deal with large business loans. Of course, this varies depending on the credit union, but many credit unions lack the resources for larger loans.
