BANKS and CREDIT UNIONS

The majority of people in the United States use either credit unions or banks for the majority of their financial needs. I will outline for you the 7 basic differences between them. There are other resources that people use for finances. The two groups of financial institutions are safe, and for the most part your funds are insured.

Let’s take a look at 9 main differences between the two:

1.   Credit unions are not-for-profit cooperation’s owned by their membership. Banks are for-profit, generally family owned or shareholder owned companies.

2.   Credit unions can and do generate earnings (profits).This money is returned to the membership in the form of lower loan rates, higher dividends, fewer fines and better service. Banks make the majority of their money on fee income. Because credit unions are member-owned cooperatives, they don’t have to generate profits to appease shareholders.

3.   Credit unions are run by volunteer boards, and Committees Members elect the Board of Directors, rather than hiring the Board. The Board of Directors represents the credit unions members in making decisions and upholding polices.

4.   Each credit union member has the opportunity to vote for the board members at the annual meeting. The banks have no process like this.

5.   Member vs. customer. At a credit union you are not just another account number. Each member has equal ownership, whether $5 or $5000. Unlike banks, credit unions have a somewhat limited field of membership. Some are broader than others. This field of membership has been expanding the past several years.

6.   Many people fear that their money in credit unions is not insured as well as money in banks. In both instances your money is insured to $250,000. The money in the bank is insured by an agency called Federal Deposit Insurance Corporation (FDIC) and your money in Credit Unions is insured by an agency called National Credit Union Administration.

7.   Credit unions do not try to compete with each other as do banks. This is one of the perks of being non-profit. Credit Unions work in tandem and form alliances, which benefit the membership. An example of this is that an ATM Card from one credit union can be used at any other participating credit union’s ATM without paying a fee.

8.   There is a rule in credit unions that you must have savings account to be a member. This rule is taken care of when you are required to deposit $5 in a savings account when you join.

9.   To finance a bank’s operations, they issue stocks and bonds.  Credit unions do not.  They only have money that is deposited by their members.

Stock is money (capital) raised by a business or corporation to start their operation. Once the stock is sold, it no longer belongs to the company, but to the individuals or organizations who bought it. For example, AT&T has over 10 billion shares outstanding; some are owned by other organizations. If you bought one share of AT&T (cost about $35), you would own about 1/10 billionth of the company. Do not be concerned if you do not fully understand this as we will come back to it at a later time.

A bond is where you loan money to a company or government for a defined period of time at fixed rate of interest. Bonds are used by municipalities, companies, states, USA and foreign governments to finance a variety of projects and activities.

The next issue will be on income.