If someone wants to decide where to do his banking, 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 differ.
- Credit unions are non-profit organizations owned by their members, while banks are for-profit entities owned by shareholders.
- Credit unions offer lower interest rates on loans and higher interest rates on savings than banks.
- Credit unions have membership requirements and are more community-focused, whereas banks are more accessible and provide more services.
Credit Union vs Bank
Credit unions are non-profit financial cooperatives owned and operated by their members. Banks are for-profit institutions that are owned by shareholders. Banks offer a wide range of financial services, such as checking and savings accounts, loans, credit cards, and investment services.
In the financial industry, credit unions are unified, and maximizing profit is not their aim. On the other hand, banks concentrate on profit the most.
To gain profit, banks offer commercial loans and savings accounts to increase earnings.
|Parameter of Comparison||Credit Union||Bank|
|Definition||A credit union can be called a financial team that gives conventional banking services.||A bank can be called a financial company with a license to make loans and accept deposits.|
|Profit||Credit unions are not interested in making profits.||Banks are always interested in making profits.|
|Leadership||Credit unions are ruled by a specific board made of recent members.||Banks have board directors who get paid.|
|Area||Credit unions mainly work in local areas.||For the bank, there is no specific area.|
|Requirement||Credit 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 united financial institution with members 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 are 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 a director. 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 organizations. That means whatever the earning rate is, it will go back directly to its “customers” (members) at low-interest rates, and there won’t be any profit hunt.
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.
School and financial counselling are also included in many services provided by credit unions. All these are possible because credit unions have fewer members than other banks.
As a result, their members can focus a lot on making positive changes. Also, credit unions benefit from not paying any income tax as they have a nonprofit agenda.
What is Bank?
Bank’s most important agenda is gaining profit and maximizing it as much as possible. Unlike credit unions, bank customers have no authority over the bank, are not the owner, and are not allowed to participate in any 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 among banks, so they cannot work together or share any basics.
Despite 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 credit union branch in a city, whereas banks have more significant numbers 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.
Main Differences Between Credit Unions and Bank
- In finance, credit unions are known to be an institution with members who are the owner with the power to make all the decisions. At the same time, banks have shareholders who make all the decisions in interest to expand their profit rate.
- 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.
- As mentioned earlier, credit unions are non-profit-based companies, meaning they don’t have to go through the hassle of paying any official income taxes. And banks are profit-based institutions, meaning they have to pay corporate income taxes, which may involve paying higher fees later.
- In credit unions, members have all the authority. That’s why credit unions take lesser service fees from members. On the other hand, because of banks’ profit-based system, they take higher service fees.
I’ve put so much effort writing this blog post to provide value to you. It’ll be very helpful for me, if you consider sharing it on social media or with your friends/family. SHARING IS ♥️
Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.