What is the Difference Between a Credit Union and a Bank? – Individuals looking for a financial institution often wonder what the difference is between a credit union and a bank. The simple explanation is that credit unions are not-for-profit financial institutions owned by the people who belong to them, while banks are for-profit financial institutions that are owned by shareholders.
What is the Difference Between a Credit Union and a Bank?
What is the Difference Between a Credit Union and a Bank?
There are no prerequisites in order to belong to a bank and any individual can join. Credit unions members typically share a common affiliation such as the same employer, school or community.
Credit unions are owned by its members, therefore any profits generated go back to them or to financial education services. Many credit unions hold financial seminars for its members on topics, such as how to manage their retirement portfolio. Bank profits are given to shareholders who may or may not belong to the institution.
A way in which credit unions are able to keep their costs down is their not-for-profit status. While they do have to pay employment taxes for their employees, they are exempt from many federal taxes. They also do not have high paid executives making investment decisions, therefore the profits can be returned to its members in several ways. Credit unions may offer higher interest rates on members’ savings accounts. They may also present lower rates on auto loans and mortgages. Most offer their members free checking accounts and low or no penalties for overdrafts.
The FDIC insures banks up to $250,000 per person per institution. The National Credit Union Association insures its members up to $100,000 per institution
Because credit unions are more localized, they may not have the same conveniences as larger banking institutions. Most will have less access to ATMs and branch offices. They may also offer a smaller variety of investment products. There are some shared branch services that do allow you to enter a credit union in the co-op network and make transactions. Banks typically have a greater selection of products including retirement and stock investing programs. Many larger banks have multiple branches that make it more convenient to make transactions.
What is the Difference Between a Credit Union and a Bank?
Understanding what is the difference between a credit union and a bank is important in financial services. When choosing which institution to employ, it often comes down to whether someone is looking for more personal service or convenience. - What is the Difference Between a Credit Union and a Bank?
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