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How Credit Unions Differ From Banks

Credit unions and banks both offer financial services like savings and checking accounts, loans, and credit cards. But there are some key ways they differ. For example, credit unions are member-owned cooperatives, while banks are for-profit businesses. That means credit unions don’t have shareholders, and they return profits to members in the form of lower fees and rates.

Understanding the difference between banks and credit unions can help your family make the best financial decisions for your family. If you are deciding between a bank or a credit union in Middleville, MI, for example, there are a few things to consider. Keep reading to learn more about the key ways credit unions and banks differ.

For-Profit vs. Nonprofit

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The fundamental difference between banks and credit unions is that banks are for-profit institutions, while credit unions are nonprofit organizations. Banks are either privately owned or publicly traded and make money by charging interest on loans and fees for services. Large banks have to make a profit for shareholders. On the other hand, credit unions are set up as cooperatives and are owned by their members. Credit unions return profits to their members in the form of lower interest rates on loans and higher rates on deposits.

Customers

Banks typically offer services to anyone who meets the minimum requirements for account holders. This can include having a certain credit rating or maintaining a minimum account balance. As discussed, credit unions are nonprofit, cooperative organizations that are owned and controlled by their members. They typically open membership to individuals who share a common bond, such as working for the same company, being involved in the same industry, living in the same community, or belonging to the same religious or social organization.

Members of a credit union typically enjoy a variety of benefits, including lower interest rates on loans and higher interest rates on savings. Credit unions may also offer lower fees and more personalized service than traditional banks.

Regulation

The National Credit Union Administration (NCUA) regulates credit unions, while the Federal Reserve Board (FRB) regulates banks. Banks are for-profit businesses and can issue stocks, which entitles their shareholders to a portion of the profits. Credit unions are not-for-profit organizations that exist to serve their members, and they cannot issue stocks.

One of the key ways banks differ from credit unions is in their access to liquidity. Banks can borrow money from the Federal Reserve at a low-interest rate through the Discount Window, while credit unions cannot. This gives banks an advantage when it comes to making loans, as they may be able to offer slightly lower interest rates than credit unions in some situations.

Another difference between banks and credit unions is that only banks are subject to comprehensive regulation by both state and federal authorities. Credit union regulations are primarily administered by NCUA, with some guidance from the FRB.

Personalized Services

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Banks are for-profit businesses, while credit unions are not-for-profit. This means that the profits from bank customers’ deposits go to the shareholders, while credit union members’ earnings are reinvested in the credit union. Credit unions also have fewer fees than banks. For example, banks may charge a monthly checking account fee, but many credit unions do not.

Credit unions offer more personalized services than banks because their members own them. Members can vote on policies and elect the board of directors. Bank customers cannot do this because they are not shareholders. Credit unions also have more branches in rural areas and offer services such as bill pay and check cashing that some banks may not offer.

Overall, credit unions differ from banks in a few key ways: they are nonprofit, they have more relaxed membership requirements, and they offer fewer services. However, credit unions can be just as safe and secure as banks, and they can offer competitive interest rates on savings and checking accounts.