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How Credit Unions and Banks Differ

Banks and Credit Unions can seem synonymous at times, offering similar features and services. Yet, the two institutions differ in their vision, value, and mission as well as the way in which they operate. When deciding between a bank and a credit union, it is important to consider which option will be a better fit for you and your lifestyle.

Here are five notable differences between banks and credit unions:

1.    Business Structure

Banks are for-profit financial institutions, local or national, led by paid board members. Existing primarily to generate a profit, activities are coordinated around maximizing that profit for a return to a small group of owners. Depositors at banks are considered customers and have no say in how their bank is operated. Credit unions are not-for-profit financial cooperatives, typically local and small, run by unpaid volunteers elected by vote and is locally organized to serve the interests of its membership. Credit unions concentrate on savings and offer higher rates of return on saving accounts and several other saving products, and all deposits are federally insured just like a bank. Their intention is to provide a large group of members with small dividends, discounted loan rates, reduced fees and additional benefits. Depositors at credit unions are members and are eligible to be elected to the board.

2.    Membership Eligibility

As a public company, banks are open to the general public, and anyone is able to utilize them. Credit unions are required by law to restrict membership to certain groups of affiliated people based on where they live, work, attend school or practice worship. You can also qualify if a family member or relative is a member. Once you join a credit union you are a member for life, regardless of involvement with the affiliated group. Being a member means you are part owner of the credit union and your voice matters.

3.    Product & Customer Service

Banks belong to an extensive branch and ATM network that gives them a significant physical presence -but usually at the cost of the member in transaction fees. Banks often fall short in customer service satisfaction, being unable to show enough personal attention to members due to its large size. Credit unions often have fewer ATMs; however many are part of an ATM and branch-sharing network that allows for FREE access. Credit unions have superior customer service due to their smaller size and more personal approach with members.

4.    Fees, Incentives & Rates

Generally speaking, banks charge much more fees at higher costs than credit unions. They also tend to pay lower interest earnings on deposit accounts and charge higher interest rates on loans. Credit unions have minimal fees that tend to be lower than those of banks and with the money saved from tax exemptions, credit unions are able to pass on these savings to their members by offering higher rates of return on savings accounts and other high-yield products, such as money market accounts and CDs.

5.    Tax Structure

As a not-for-profit, credit unions are exempt from income tax but are subject to normal business taxes. Unlike with banks, taxpayer funds have never been used to bail out a credit union, and profits come back to members and the local community.