Understanding The Principle Differences Between Banks And Credit Unions

Banks and credit unions offer similar services to their customers such as loans

, savings accounts, insurance policies and mortgages. Both are overseen by government agencies which ensure that their customer's savings are protected. However, the two types of financial institutions have major points of difference when it comes to their organization and objectives

Goals

Banks adhere to a standard business model. Their goals are to maximise profits, increase the price of their stock, and pay dividends to their shareholders. A credit union is a co-operatives formed to improve the financial wellbeing of a community through means such as encouraging savings and providing low interest loans.

Profits

Credit unions are not-for-profit organisations. Of course, they must profit from their loans and investments in order to be able to pay interest on deposits and cover their operating costs, but any excess earnings are returned to members in the form of lower interest rates on loans or higher interest rates on savings. A bank's profits are paid to its investors and do not typically benefit its customers.

Clientele

Anyone with sufficient income can open an account at any major bank. A credit union only offer accounts to members. Membership may be open to anyone who lives or works in a particular city, town or geographical area. Alternatively, members may have to belong to a certain organization such as a social society, workers union or church. Services are tailored to meet the needs of the membership group.

Owners

A bank is owned by stockholders who benefit directly from its profits. A credit union is owned collectively by its member-customers. Each member has equal ownership, no matter how much or how little money they have deposited, and each gets one vote in elections.

Leaders

The board of directors governing a bank are elected by the investors and paid impressive salaries. The decisions they take must benefit the stockholders. In a credit union, the membership elects a volunteer board of directors from among their own ranks. Directors make decisions with the goal of improving services for member-customers.

Customer Benefits

National banks with a huge customer base tend to provide more services than local credit unions and invest more in technology. Many banks offer their customers the convenience of being able to quickly check their balance on their cell phone or pay bills on their laptop. The advantages offered by a credit union are more basic. They typically offer higher interest on savings, lower penalty fees and lower interest rates on loans. Members also benefit by knowing that any profits made by their financial organisation are used to help their community prosper.

by: Martha White

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