Difference Between Credit Union and Bank (With Table)

Credit Union vs Bank

If someone wants to make a decision about where he will do his banking then he has two choices. A credit union or any usual bank. Both these terms are financial institutions that offer quite similar services like- taking loans, checking or savings accounts, etc.

Their goal is to save your funds from unnecessary spending, but their inner forms are different.

The key difference between a credit union and a bank lies in the fact of how they operate. In a credit union, its members are called ‘customers’. And they are the owner. But a bank is like a company and they want to make strategies to expand their profit for the shareholders.

In the financial industry, credit unions are unified together and maximizing profit is not their aim. On the other hand, banks concentrate on profit the most.

To gain the profit, banks offer commercial loans and savings account that will increase the earning.


 

Comparison Table Between Credit Union and Bank (in Tabular Form)

Parameter of ComparisonCredit UnionBank
DefinitionA credit union can be called a financial team that gives conventional banking services.A bank can be called a financial company that has a license to make loans and accept deposits.
ProfitCredit unions are not interested to make profits.Banks are always interested to make profits.
LeadershipCredit unions are ruled by a specific board made of recent members.Banks have board directors who get paid.
AreaCredit unions mainly work in local areas.For the bank, there is no specific area.
RequirementCredit unions' service is for a certain kind of group.A bank account can be opened by anyone, meaning their service is not for only a specific group.

 

What is a Credit Union?

It is already mentioned above that a credit union is a financial organization that has no desire to gain profits. In theory, it is a financial united institution that has members also known as account holders.

They seem to carry a unique connection. For example- their employer seems to be the same. Credit unions perform based on specific communities and operated by equal participation of all the stakeholders in decision making.

They have a board and any member of credit unions are welcome to join as directors. Their asset level is not an issue in this case. Credit unions want their customers or members to participate in every decision they make for the future.

As mentioned before credit unions are a nonprofit based organization. That means whatever the earning rate is it will go back directly to its “customers” (members) in low-interest rates and there won’t be any profit hunt of any kind.

Their services are very similar to banks. Such as- checking or savings accounts and mortgages. And there are plenty of noticeable friendly rates and needs in credit unions.

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Among many services provided by credit unions, schooling and financial counseling are also included. All these are possible because credit unions have fewer members than other banks.

As a result, their members are capable of focusing a lot in order to make positive changes. Also, credit unions get this benefit of not paying any kind of income tax as they have a nonprofit agenda.

Credit Union
 

What is Bank?

Bank’s most important agenda is gaining profit and maximizing it as much as possible. Unlike credit unions, banks customers have no authority over the bank, they are not the owner and they are not allowed to participate in any kind of decision making.

Those who invest in a bank are the owner. And their only concern is expanding profit and to satisfy the stakeholders. In a bank, every decision and policy that has to make are taken by the investors and the stakeholders.

Here customers of the bank are not allowed to get selected for the board and also they have no right to vote. There is always rivalry going on among banks and as a result, they cannot work together or share any sorts of basics.

In spite of many reasons, there are still so many benefits a bank can provide to its customers. For example- sometimes it’s possible to find only one branch of a credit union in a city, whereas banks have larger numbers in the matter of branches.

And this number brings a significant change in people’s lives. Whenever a customer needs to withdraw money they can easily reach the nearest branch of their bank and this opportunity makes their task easy in so many ways.

Bank

Main Differences Between Credit Union and Bank

  1. In finance, credit unions are known to be an institution and they have members who are the owner with the power to make all the decisions. Whereas, banks have shareholders who make all the decisions in interest to expand their profit rate.
  2. In credit unions, one has to join first to be considered a legal member and these members can be selected by vote to have a seat on the board. On the other hand, banks don’t have this sort of member. They have customers who have no authority whatsoever.
  3. As earlier mentioned, credit unions are non-profit based companies, meaning they don’t have to go through the hassle of paying any kind of official income taxes. And banks are profit-based institutions, meaning they have to pay corporate income taxes which may involve paying higher fees later.
  4. In credit unions, members have all the authority. That’s why usually credit unions take lesser service fees from members. On the other hand, because of banks’ profit-based system, they take higher service fees.
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How to Remember the Difference Between Credit Union and Bank

Time Needed : 2 minutes

Remembering the differences is very simple, just follow our mind mapping guide given below:

  1. Associate the first word with a thing or item which you see daily

    For e.g.: Middle line in letter H for Horizontal

  2. Associate the second word with a thing or item which you see daily

    For e.g.: The two lines in letter V for Vertical

  3. Recall the two words daily two times

    During morning and evening bring up the two words in front of you and then recall the things that you had associated with each word.

  4. Repeat for 7 days

    Repeating this process for a week will help you remember the difference between words for a long time


 

Frequently Asked Questions (FAQ) About Credit Union and Bank

  1. Are credit unions as safe as banks?

    Yes, if the credit union in which you are thinking to invest is federally insured. Everyone deposit their money in the bank because safety is their first priority.

    Credit Union provides protection, just like any other traditional banks. Now credit unions are becoming very popular for personal and business financial services because of security.

  2. Can anyone join a credit union?

    Yes, anyone can join a credit union if he/she is within the credit union’s field of membership. You can be credit union member if you have following listed things in common:

    a) If your employer sponsors his own credit union

    b) If any of your family members is a member of a credit union

    c) They also provide memberships in groups from a place like a school, labor unions, worship, or homeowner’s association.

    d) If you live, worship, work or attend a school in a specific geographic area.

  3. Do credit unions check your credit?

    Yes, credit unions check your credit score and credit report while you apply for the membership. But it doesn’t matter if your credit is bad as it will not determine approval for the membership in a credit union.

    It only dictates services that you will be eligible for. Your credit score and report will only be used for a loan application, whether you can be approved for the loan or not.

  4. How do I borrow money from a credit union?

    The money which is in savings or current accounts of the unions is lent to other members of the union who need it at an affordable rate.

    If you have to borrow money from a credit union, it is necessary to obtain a membership from the credit union. Under certain circumstances, you even have to build up some savings first.

  5. Do credit unions pay more than banks?

    Credit Union is a community where members pool their money to help each other by lending it. Yes, the credit union pays between four to ten times more interest amounts than your local commercial bank.

    The credit union pays higher interest rates on the deposits of all accounts like savings, checking accounts, and money market.

  6. How can I join a credit union with bad credit?

    Your bad credit will not block you from being a member of a credit union if you meet all the requirements for membership. Despite having bad credit, you can join a credit union if you are eligible.

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Infographic

Credit Union vs Bank

 

Learn More With the Help of Videos


 

Conclusion

If anyone wants to decide between these two financial organizations then he or she should consider facts, like- their customized requirements, interests, etc. To many users, the credit union is a right pick, and for many, a bank seems more appropriate.

Both these terms have advantages and cost rates, that’s why to choose wisely people need to know their definitions and differences. This will give us the chance to be more confident and to enjoy what these financial entities are offering.


 

Word Cloud for Difference Between Credit Union and Bank

The following is a collection of the most used terms in this article on the Credit Union and Bank. This should help in recalling related terms as used in this article at a later stage for you.

Word Cloud for Credit Union and Bank

 

References

  1. https://wallethacks.com/commercial-banks-vs-credit-unions/
  2. https://loanscanada.ca/money/the-difference-between-a-bank-and-a-credit-union-in-canada/
  3. https://kalyan-city.blogspot.com/2011/02/what-is-bank-introduction-definition.html

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