The most common question we are asked here at creditunionroutingnumber.website is “What Are the Differences Between A Credit Union and A Bank ?”
While it surprises us that even today many people are unaware of what a credit union is and how it differs from a traditional bank.
If you take a close look, It quickly becomes evident that a credit union is very different from a bank and the differences between them are many. They have different ways of handling and treating their customers. Majority of the people do not know the differences between the two financial institutions.
With that in mind, here are some main differences between the two:
Credit Unions Deliver A Different Level and Set of Services
For credit unions, they mostly do not have all the financial services to its members but a bank offers all the services. Some of the services offered include; checking of the accounts, issuing out loans, all products of investment, saving in the accounts, opening a business account and issuing of loans, credit cards issuing and finally offering mobile and online banking.
Difference between being a customer and being a member
In a bank, every person is called a customer while in a credit union, people are called members. The members in a credit union have a share account where each new member has to make a small deposit amount into the account as a saving. After making this deposit in the share account, you automatically become a member and at the same time a shareholder.
In a bank, all you need to do is open an account for free but you cannot become a shareholder because to be a shareholder, you must not be a customer.
A bank an institution that makes profits while a credit union doesn’t. By this, a credit union does not pay some taxes to the state but for a bank, it has to pay this taxes, for example, federal income tax and tax of the state. Due to this variation in tax and profit arrangements, each one of them has a different way of earning.
Utilization of earnings
The earnings that the credit unions get are used in increasing their services to the members by giving them some returns and also decreasing their interest rates and fees. For the banks, their earnings are returned only to the shareholders of the bank also referred to as the investors of the bank.
The way of management
A bank is run by a board of directors who are guided by the investors of the bank because they own the shares in the bank. For a credit union, it is run by a board of members who act as volunteers to run the whole credit union.
Requirements of each to be a part of them
Credit unions can only serve a certain population which they cannot pass more than that and the members must meet some requirements set by the union so as to become members and open accounts. For the banks, they don’t have any limit at all and anyone can decide to open an account.
Area of Service
In the local areas, Credit unions are the ones that are found there and the members must come from that locality when joining it. Also, the employees are from that region. The earnings made are used to develop that region by offering small loans to them. But banks range from small community banks to national banks. The employees of banks come from diverse regions. The earnings benefit the shareholders.
These are other differences, however, these are the main differences between these financial institutions. You can decide which to join based on your needs and depending on your income too. All of them have their advantages and disadvantages, therefore, your choice will depend on what you need to achieve. Before choosing any of them, you should first make a big comparison based on the differences between a credit union and a bank.