Credit unions and banks may, at first glance, seem to be quite similar. Deposits in both banks and credit unions are insured by the federal government; however, under different programs. Bank deposits are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). Credit union deposits are insured up to $250,000 by the National Credit Union Administration (NCUA).
Banks and credit unions also offer similar services; however, these two types of institutions do have many differences.
Credit Unions are Cooperatives
Banks accept any customers from the public. Credit unions are formed to serve a specific group of people that become members. For example, credit unions may be formed for workers of a certain kind or they may be formed for small businesses of the same type in a local area. Credit unions are also open to the general public within a specific geographic location, known as a community charter. This community charter is generally the city where the credit union is located; some credit unions have a charter that encompasses an entire state, or even the nation itself. A bank is owned by its shareholders; a credit union is owned by its members.
Distribution of Profits
A bank is run as a “for profit” enterprise. Any profits made by a bank accrue to the bank’s shareholders in the form of stockholders dividends and increased shareholder value. Shareholders are not necessarily customers of a bank. Profits made by credit unions are returned to the members of the credit union. Members of a credit union are its customers.
The extra money earned by a credit union, in excess of its operational expenses, is returned to its customers. This comes in the form of higher interest rates paid on savings accounts or certificates of deposits of a credit union and lower interest rates for loans made by a credit union.
Credit Unions Have Lower Fees
Another difference between credit unions and banks is that credit unions are not-for-profit so they can charge lower fees than their corporate counterparts. Credit union members are typically able to get loans that have lowering closing costs because the fees for the loan are less than what a bank may charge.
Credit Unions are Community Focused
Many banks that are part of a large organization do not have the same focus on the local community as would typically be found with a credit union. A credit union’s customers are its members, and they come from the local community. When a credit union decides about giving a loan, the needs of the local community usually have priority over a transaction that could be placed elsewhere by a bank merely to make money.
Credit unions are part of a vibrant community and often are extensively involved in community redevelopment. When the customers of a community credit union thrive, so does the community and that, in turn, helps make the credit union stronger.
We here at First Alliance Credit Union are proud to serve the Rochester area community. Our members are our friends, neighbors, and family. If you have any questions about how we serve the community, or how we can serve you, please contact us now!