Four Big Differences Between Banks and Credit Unions

difference between banks and credit unionsMost people use bank as a catchall term to refer to any place they have a saving or checking account.  That includes traditional banks, savings and loans, and credit unions.

But not all banks are the same.

The truth is, there are some pretty big differences between banks and credit unions – who owns them, how they use your money, what they do with excess earnings – those kinds of things.

And to make the best decision on where to put your money, you need to know what makes each institution tick.

In the rest of this post, I’ll be describing four differences between banks and credit unions – and what that means for you as a consumer of personal financial products and services.

Difference #1: Profit Motive
Credit Unions are not-for-profit financial co-operatives where people pool money together for the good of all members.  Excess earnings are provided directly to members through lower-cost and free services and better loan and deposit rates.

On the other hand, banks are typically for-profit financial institutions who return earnings to owners – like shareholders or a holding company.

Difference #2: Ownership
Most banks are owned by external shareholders.  While credit unions are owned by the very people they serve – members just like you.

Sure, but what’s that mean?

Well for starters, as a credit union member-owner, you have a direct voice in the leadership of your financial institution (more on that in a minute).

And you also get to share in the success of the credit union.  More often than not, that comes in the form of lower loan rates and higher savings rate.  But some credit unions also give members direct dividend payments based upon how much they use the credit union.

For example, at PrimeTrust we pay out excess earnings to each year to reward members for things like using online banking, having a first mortgage account, or a loan with a balance of over $10,000.  In fact, we’ve provided members with over $200,000 in patronage checks in the last two years alone.

Difference #3: Cooperation Among Cooperatives
Most credit unions work together in a cooperative business network designed to benefit members.

That includes free access to over 5,000 branch location and over 28,000 ATMs nationwide through the Co-Op Shared Branch network.

Needless to say that’s pretty unique.  Two businesses – in the same industry, competing for the same customers – agreeing to share resources for the common good isn’t something you see every day.

So why do they do it?  All credit unions share the same seven cooperative values – among them concern for community and co-operation among co-operatives.  In other words, sharing for the benefit of members is simply hard-wired into their DNA as a not-for-profit business.

On the other hand, most banks operate independently.  That means that while they’re very motivated to help their own customers succeed financially, there’s less emphasis on providing free resources to another bank’s customers.

So, while you can probably use another bank’s ATM – and might be able to do your banking at an outside branch – expect to pay additional fees for the privilege.

Difference #4: Leadership
Credit unions are governed by a volunteer board of directors – members who are elected directly by other members.

So every member has an equal vote (and voice) in director elections.  Don’t like the direction your credit union is headed?  Upset about new fees?  Want extended hours or suckers in the drive-through?  You can vote for a candidate that shares your views – or even run for a leadership position yourself.

Banks boards are appointed by shareholders –sometimes including people who aren’t even active bank customers.  Not that there’s anything wrong with that.  You don’t have to be a customer of a bank to be an effective manager, after all.

But there’s probably going to be a disconnect between what might matter to you as a twentysomething in Muncie, Indiana and someone who’s the CEO of a accounting business living several states away.

The Wrap Up
In the end, there’s no “right” choice for what kind of financial institution you should use to put your money.  What might appeal to some about a credit union won’t necessarily resonate in the same way for others – and vice versa.

And not all banks or credit unions are run the same way either.  There are credit unions with good customer service and those that miss the mark.  Banks that have a local presence and concern for community on one hand and big, nation-wide, mega-banks on the other.  Financial institutions that are a little-more hands-on and customer-friendly and those where rate is the only thing that matters.

That’s why it’s important to do your own due diligence – including online reviews and talking to friends and family about where they bank and why – before you make what’s a pretty big decision.

Leave a Reply

Your email address will not be published. Required fields are marked *