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What's the difference between a bank and a credit union?
WRITTEN BY :   Marianne R. Noss, Downey Federal Credit Union

Are credit unions and banks very different or are they similar? This article covers some of the common misconceptions, such as “Do you need to belong to a union to join? Do you have to belong to a special group? Is a credit union like a bank?”
To dispel any myths, we want our community members to know what credit unions are and what they offer. First and foremost, a credit union is a member-owned not-for-profit financial cooperative, with many similarities to a bank. Credit unions are full-service financial institutions, offering savings and lending products, investment products, and electronic services just like a bank. Credit Unions were first formed in Germany in 1852 and have gained popularity since they were brought to the United States and Canada in the early 1900′s. Within the U.S. there are approximately 8,100 credit unions and 89 million members.
The people who open an account at a credit union are called members, not customers. According to its charter, a credit union can be federal or state-chartered, and have companies in its field of membership, known as select employee groups. Community members may also be able to open an account at a local credit union. Those members who deposit money (called shares) into the credit union help build the credit union’s asset base. The more people who contribute money to a credit union’s asset base, the more money the credit union has to lend out to its members. This fact goes along with the philosophy of “People helping People”, a major credit union initiative.
As a not-for-profit organization, a credit union does not have shareholders as banks do. Shareholders benefit financially by sharing the profits of the bank. On the other hand, credit unions are owned by their members. And, they distribute their extra income, after expenses have been met, in the form of quarterly dividends to members. Since credit unions operate to serve their members rather than to maximize profits, they are able to offer members more affordable loans, a higher return on savings, and lower fees on products and services compared to other financial institutions.
Credit unions have an elected Board of Directors, who are also volunteers. In a bank, the Board of Directors (BODs) are typically paid positions, while the credit union’s BODs are volunteers and community leaders. Members have the opportunity to elect their Board members, who take the credit union’s economic health and direction into consideration, and not just its profitability. The saying, “one member, one vote” means that no matter how much money a member has invested in the credit union, that member is still entitled to just one vote .
The motto of the credit unions is “Not for Profit, not for Charity, but for Service.” In research studies, many credit union members prefer the personalized service the credit union offers them. A worthwhile service that credit unions extend to the community includes financial literacy programs. Many credit unions do offer financial education classes to community members on a variety of financial topics, whether the community members are credit union members or not.
For convenience and accessibility, credit union account holders can go to an ATM network to access their funds. In the U.S. and Canada, there are 28,000 ATMs from which to choose. Thus, belonging to a credit union can be convenient for accessing your funds.
Lastly, there is no difference in the deposit insurance of banks and credit unions. Both credit union deposits and bank deposits are federally insured up to $250,000. However, some credit unions can insure deposits beyond the $250,000.
While banks and credit unions are both financial institutions, there are differences in each organization’s approach to finances. Thus, each person has financial choice with regards to transacting their business, whether they choose a credit union or a bank, or both.

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Published: April 26, 2012 – Volume 11 – Issue 02



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