We all know what a bank is, but when you drive past a credit union, do you wonder how it differs?
Banks and credit unions are both financial institutions where you can open checking and savings accounts, get credit and debit cards, purchase CDs and make other financial transactions.
But there are some major differences between how credit unions operate from banks.
1. Field of membership
One of the key differences between the two is anyone can walk in a bank, open an account and become a customer.
At a credit union, in order to qualify as a member, you must meet certain criteria. This is also known as a field of membership.
It means all members of a credit union must legally have something in common. This ranges from place of employment and the county you live in, to the region where you worship.
Some smaller credit unions have very specific criteria, but many larger credit unions have many different ways to join, making it easy to qualify.
2. Profit status
Most banks, especially national ones, are for-profit institutions. The largest banks are publicly traded on the stock market.
While being for-profit may give some banks large resources to have things like great credit card reward programs, it also means they are accountable to investors and shareholders. Those needs sometimes come before customer needs.
By definition, credit unions are not-for-profit institutions.
Because they do not have to pay dividends to shareholders or be accountable to investors, they are able to provide better rates on loans and mortgages to members.
The fact that profits are returned to members in the form of better rates is one of the key reasons why many people choose to use credit unions over banks.
“While banks and credit unions are regulated
by different systems, your money is safe at both.”
3. By the members, for the members
For-profit banks have a board of directors that is paid and chosen by the company.
On the flip side, credit unions are democratically operated and the board of directors consists of volunteers.
All credit union members, regardless of how much they have invested, get to vote on who is on the board and how the credit union is run.
4. Federally insured
When you have a checking or savings account with a bank, it is federally insured by the Federal Deposit Insurance Corporation (FDIC).
Alternatively, federally insured credit unions are regulated by the National Credit Union Administration (NCUA) and your money is backed by the U.S. government.
While banks and credit unions are regulated by different systems, your accounts are each insured by $250,000, so your money is just as safe at both institutions.
Photo source: turner.com.