You don’t know? That’s alright- you’re not the only one. Most people use the terms “credit union” and “bank” interchangeably. And while on the surface, credit unions look a lot like banks, there are significant differences that are important to note.
I’ll admit- before I started working for a credit union, I was pretty much oblivious to the differences between credit unions and banks. I was also a bit apprehensive about opening an account at a credit union- mainly because I wasn’t sure what they exactly were, or if there was some special requirement needed in order to become a member.
Thankfully- my questions were answered. Read on for the questions I had, as well as the answers I was given!
What is the exact definition of a credit union?
A credit union is a member-owned financial cooperative that exists to service the needs of its members. So what does that mean?
Basically- when you join a credit union (like SeaComm,) your initial deposit to open a share account (savings) establishes your membership and actually makes you a part-owner of the credit union.
What is the main difference between a credit union and bank?
Credit unions are not-for-profit institutions. Because credit unions are owned by their members (you), any profit which was earned by the credit union is either invested back into the organization or paid out to the members (you) in the form of dividends. They have a volunteer Board of Directors…made up of members…who are elected by the credit union membership/owners.
In comparison, Banks are for-profit companies, which means they make money by charging higher interest rates on loans, collecting various fees, and then reinvesting these earnings in an effort to make more of a profit. Banks do not have members, rather- they have customers. Their customers have no ownership interest; however banks do have shareholders, or investors. They have a paid Board of Directors that make all of the decisions and do not even need to be a customer of the bank! Most decisions made are based on what makes a higher profit for the shareholders/investors and not what is best for the customer.
How do you become a member of a credit union?
In order to become a member of a credit union, you must open a share account. A share account is the credit union term for a savings account. Don’t worry- if you call it a savings account, the teller or representative will surely know what you mean.
Most credit unions, SeaComm for example, only require an initial $5 deposit to the share savings. From there, you can explore the many benefits of a credit union membership (low interest loans, line of credit, financial advisor services, low rate credit cards, checking and savings accounts etc.)
Credit unions are charter based, which means you must fall within certain membership guidelines to be eligible to join. There are three credit union charter structures: single common bond (occupational and associational); multiple common bond or community.
SeaComm is a community based financial institutions- which means that you must live, work, worship, or attend school within the region in which the credit union operates.
For example, in order to become a member of SeaComm, you must live, work, worship or attend school in the St. Lawrence, Franklin, or Clinton counties of New York State.
All charters are applied for and granted by the NCUA (National Credit Union Association)
Is getting a loan at a credit union any different from getting a loan at a bank?
Loans, like most financial products and services, are very similar at both credit unions and banks.
Do you remember when I told you that the main difference between banks and credit unions is ‘ownership’? Well, ideally, that means that because you are an owner, you’ll get a better deal at a credit union. Without outside owners demanding profit increases (as they do at banks,) the credit union will undoubtedly provide the same services that a bank does, but at a fraction of the cost.
Therefore, if you were to compare a loan received from a bank, to a loan received from a credit union, you would find that the individual receiving the loan from a bank ended up paying more interest and fees over the term of the loan.
Now, given the information provided, as well as the knowledge you already had regarding banks and credit unions- Do I really need to ask you which is better?