We see banks on every corner. On the other hand, credit unions are thought of as savings and loan institutions that are not as prestigious as banks. However, in reality they are the best kept secret in the world of financial institutions. But don’t let me influence you. Here are some characteristics that distinguish the way that banks operate as opposed to credit unions.
- Who owns them? Banks are owned by a group of investors. They decide the policy and administer the work of the bank. Banks are organizations that look to make a profit so that the investors can recoup a return on their investment. Credit unions are owned by the members. The board is made up of volunteer members who want to serve their fellow members. As shareholders in the credit union, each member gets a vote and has a voice in policy making decisions that affect their money.
- Are my funds secured? Banking funds are backed by the full faith and protection of the federal government. The group that insures these funds is the Federal Deposit Insurance Corporation. We’ve all seen that little FDIC sign on the front window of the bank. Credit union funds are also backed by the full faith and protection of the federal government. Their funds are insured by a different group, the Credit Union National Association or CUNA.
- Who can join? Anyone who can meet the requirements of the banking institution can open an account there. Banks have a greater reserve of cash at their disposal so they offer incentives to get customers in the door. They call these “loss leaders”. If half of the people that come in open an account, then the bank can afford to take a loss on the items that they are giving away for free. Credit unions are not open to the general public like a bank is. Credit unions choose members based on many factors: geography, workplace, religious affiliation, and civic associations. There is a credit union out there for everyone if you look long enough. The small selection of members allows them to offer better services to those members.
- How friendly are they? Banks put a friendly face on their ads and commercials to earn your business. The problem is that some banks don’t work as hard to keep your business. If you are dissatisfied with their services they invite you to choose another institution. Banks operate in a way that satisfies their investors, and they earn a profit. Credit unions work to keep customers happy. After all, the customers are the shareholders. Credit unions are not for profit, so any funds that do not go to operating and other financial costs are funneled back into offering lower interest rates on loans and higher yields on CDs and money market accounts.
Banks don’t like credit unions because they offer something that they don’t: consistent customer service and better interest rates. On the other hand, banks have incentives that credit unions can’t match because they don’t have as much money to use on them. The choice is up to each customer to decide what is most important to them in an institution.