Credit Union vs. Bank: Is There Really a Difference?
Saturday, April 12, 2014, 1:00 PM | Leave Comment
In this economy, many consumers are trying to figure out which institution is best to have their checking, savings, and other finances with.
People may think to themselves that conventional banks are the only options.
However, the credit union has slowly gained in popularity over the years with many consumers happy with the credit unions’ services. But, some people still prefer to go with a conventional bank.
If one is wondering what is the difference between a bank and a credit union, here are some key differences.
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Membership
A traditional bank will accept customers into the bank with some specific credentials, such as having a deposit to set up an account and being able to establish a checking account.
When a customer finalizes their application to the bank, the bank serves as a business that houses the customer’s finances.
With a credit union, a person is also applying to have their finances stored at the credit union, but the person applying is becoming a member of the credit union.
In other words, “customers” to a credit union are literal part-owners to the credit union while the bank is operated as a for-profit business that facilitates customer money and finances.
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Goal
As a for-profit institution, banks serve their shareholders or to make profit for their owners. In addition, banks serve as contributors to commerce by giving out personal or commercial loans and help to establish credit and financial rewards, like interest, for their customers. Credit unions are completely non-profit.
All fees from the credit union are used to the benefit of all services provided for their members.
When there is revenue for the credit union, the revenue is put back into the credit union in the form of low fees and more financial services for their members.
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Insurance
The government provides financial protection for banks in the name of their customers. The creation of the Federal Deposit Insurance Corporation (FDIC) helps to protect each individual customer with a bank for up to $250,000 if there is a banking crisis or solvency issue.
Only banks that are part of the FDIC network receive this federal protection. However, there are no federal protections for credit unions.
Instead, credit unions formed a trade association that provides FDIC-like protections for members of credit unions called the Credit Union National Association (CUNA).
Like banks, only credit unions that are explicit members of the CUNA will provide credit union members this protection.
According to Air Force Federal Credit Union, you can rest assured that your money is still protected at the credit union.
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Experience
Although banks must serve customers since they are for-profit, credit unions provide a level of customer service that is meant to make members feel like they are the part-owners of the credit union.
As part-owners, they have a say with how the credit union is run and a member can have an opportunity to work and become part of the board for their individual credit union.
Banks will of course provide a level of customer service that is appreciated, but the customer of any bank can only really talk to management about how they are treated or how their experience has been with a bank employee or with the bank in general.
There is no real managerial power for the customer with a bank.
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Scope
Banks tend to be very sophisticated with the services they provide. Since banks are very active in commerce, there are many financial services they can provide their customers to meet their personal or professional financial needs.
In addition, banks are much larger in terms of their overhead and profits. Some banks can be quite local and regional, however, banks have the ability to become multi-billion dollar entities that command a huge chunk of the economy.
Credit unions tend to be always local or regional since their members are the actual owners of the credit union.
In addition, credit unions tend to not engage in complex financial mechanisms and tend to only focusing on personal accounts, commercial loans, and other financial actions most conventional banks will normally do.
Credit unions and banks have their advantages and disadvantages, but only when someone understands the difference between each institution.
Knowing how a bank and a credit union function can really help people determine if they want to be a customer to a bank or a member to a credit union.
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