People are confused about credit union bank difference. A lot of them can’t tell them apart. What’s the difference between a bank and a credit union? Yes, both institutions are money driven—meaning they take in money and lend it out as well. It’s best to find out the distinct features of each institution. You probably might be able to make better financial decisions once you can tell each institution apart.
The Similarities Between Banks and Credit Unions
In order to know what a bank is and what a credit union is, let’s first tackle their similarities:
- Both offer accounts where you can deposit your money and it earns interest
- Both banks and credit unions offer Certificates of Deposit and other financial instruments
- They both have other specialized financial services
- Both give out loans at specific terms and interest rates
- Both have insurance where depositors can get their money back should the institution become insolvent (up to $250,000)
At a cursory glance, you’ll see that both are very much alike. They basically do the same things. But you’ll get a clearer understanding of how each work once you learn how each is different. Banks and credit unions differ fundamentally in how they’re being run.
The Differences Between Banks and Credit Unions
Both institutions are run differently, and that’s what sets them apart. Here’s how they differ:
- Banks are managed privately while credit unions are cooperatives run by volunteers.
- When you deposit your money to a bank, what you are doing is lending out this money for the bank to use. They will then pool the money they got from their depositors and offer these out on loan. For credit unions, the money you put becomes your share of the union. In effect, you become a part owner of the said union.
- In banks, you are termed as a depositor. In credit unions, you are called a member.
- Credit unions are set up locally while banks are open to the public and have a wider reach. Credit unions are also more selective in accepting members, while banks generally accept any depositor who wishes to deposit money with them.
- Credit unions are not-for-profit organizations while banks are for-profit. As such, credit unions share the wealth with all their members. And since everyone is a part-owner in a credit union, they can expect the wealth to be shared in the form of higher interest rates for savings accounts, lower loan interest rates and profit sharing at the end of the year.
- Credit unions focus more on the member, offering financial strategies to them like start-up loans and high-yield savings accounts. Banks cater more for commercial loans and have a ready set of financial products on offer for their customers.
- Credit unions are known to share resources with other credit unions. Banks are very strict with propriety matters and never share resources with other banks.
- Banks have been bailed out several times using the people’s tax money. Credit unions, on the other hand, with their more than a hundred years of operation, have never been bailed out. This goes to show how shrewd these unions are lending out their money.
- Banks are insured by the FDIC, while credit unions are insured by the NCUA.
- When you need to withdraw money from a credit union, you may have to go physically to their brick-and-mortar office. Banks now offer online banking and wire transfers.
- Credit unions do not have a wide network of ATMs like banks. Expect the withdrawal charges to be stiffer if you withdraw from an ATM that is not accredited by your credit union.
These are the credit union bank differences. They have their similarities, but they also are different in so many ways. If you want to place your money in a more local and intimate place under the care of fellow-members like yourself, then a credit union is for you. But if you want ease-of-access and need a number of specialized services, then you should deposit in a bank. To determine where you can best place your money, contact your local bank personnel and credit union officer now.