01 Dec Bank vs. Credit Union: The Key Differences
People tend to use the word “bank” to refer to any financial institution, but really there are two types of financial institutions you need to be aware of: banks and credit unions. Banks and credit unions are similar in that they both offer financial products to customers, such as checking and savings accounts, CDs, loans, and credit cards; but there are some key differences between the two to consider as well. Here is a look at the primary differences between banks and credit unions.
A bank is a for-profit financial institution that is owned by shareholders. Banks make a profit by using depositors’ money to make loans and collecting interest on these loans, as well as through various fees and investments. A bank’s declared earnings are then paid to its stockholders.
Open to the general public
Anyone and everyone in any part of the country can do business with a bank. Therefore, banks are much larger institutions.
Larger national banks are able to offer more financial products to their depositors. Bank of America, for example, currently offers at least four different types of checking and savings accounts, 23 different credit cards, and a wide variety of loan and investment products.
A credit union is a not-for-profit financial institution owned by its members (a.k.a. its depositors). Board members of a credit union are volunteers voted in by its members. Credit unions technically make money in many of the same ways that banks do, but because they are non-profit, any declared earnings are either invested back into the credit union or paid out to its members (in the form of higher savings account interest rates, lower loan interest rates, or a dividend.)
Open only to certain members
Credit unions have more stringent member requirements than banks do because of their ownership structure. A credit union, for example, might restrict membership to its employees and immediate family members. Or, a credit union for teachers might restrict membership to teachers who work within a certain school district. Or, membership may simply be restricted to individuals within a certain geographic area.
Because credit unions have a more localized clientele, they tend to have fewer financial product options to offer. A credit union, for example, might offer two types of checking and savings accounts, two different credit cards, one type of home loan, one type of auto loan, and one type of personal loan.