The Differences between a Credit Union and a Bank
To many people, the phrase ‘credit union’ may simply be considered a synonym for a bank. For others they may see a bank and a credit union as essentially the same thing, as from the outside looking in the operations and services seem fairly identical.
The View from the High Street
To an extent they are right, from the outside looking in, a credit union and a bank are very similar; their main differences stem from the raison d’etre of the organisation and are in the structure, which are not obvious from a viewpoint from the high street standing outside the branch.
A bank is motivated to make money. The services it provides are designed to result in a profit from its customers. A credit union however is a member owned financial union which provides financial services. It is not motivated by the bottom line profit figure.
A bank serves customers. A credit union serves its members. This is a key distinction.
Banks and credit unions have different corporate structures. While a bank is a commercial entity with a traditional corporate structure that is removed from its customers, a credit union’s corporate structure is decided by its members. Each member of the credit union is given a vote to elect the director of the credit union.
This is a distinct difference from the anger that was felt towards the heads of banks around the world as they received massive bonuses from their jobs despite having caused a crisis with mismanagement. In a credit union the members would be able to remove such figures that provoke anger from their investors. In a bank the customer has no say in the leadership; they can merely take their business elsewhere.
As a credit union is not a business designed for profit, its tax status reflects this, and this can often be passed on to customers. The ethos also often leads to better customer service. Employees in credit unions are incentivised to recommend what is best for the client, not push products on them.
So while these are hugely significant advantages that a credit union has over a bank, there are also of course drawbacks as well. Credit unions are not as large as banks typically. Without profit reinvested in marketing and gaining members, credit unions are often smaller. This can lead to inconveniences with banking with credit unions as they simply have less capital than banks. Their branches are not as widespread as the largest banks, and their product range is normally not as wide ranging.
Benefits of Being Bigger
Some credit unions may require more specific ATM’s to withdraw cash. There may be more charges on transactions. For international banking especially it is easy to imagine the problems that could occur when trying to use a credit union that is not internationally recognized compared with a bank which has international status.
Credit Unions may also lack the infrastructure to support internet banking, or staff resources to provide efficient help lines if there are any problems.
Credit Unions are well worth investigating as an alternative to a traditional bank, however it may be the case that your financial needs are better served at the bank, despite the credit unions best efforts.
This article was submitted by author James McDonnel. He frequently posts on a number of leading financial related blogs. When he’s not writing for his financial institute he works with SwiftMoney, providing short term loans to those in need.