CU Forms: Credit Unions vs. Banks – Any Difference?
Credit unions and banks offer similar services: they accept deposits into checking (Share Draft Accounts for credit unions) and savings (Share Accounts for credit unions) accounts, and make loans. However, the structure of these two financial institutions is very different. There are three main areas that banks and credit unions vary greatly: Ownership, profit, and service.
You’re in charge! Well, at least if you’re part of a credit union, that is. Credit unions run on a democratic voting system—one member has one vote. For credit unions, it doesn’t matter how much money you have in your checking and savings account. As long as you belong to the credit union, you have an equal say in how things operate. In addition, individuals on the board of directors are all volunteers, are elected by the members, and are not paid. Any member of the credit union can run to become a board member. On the other hand, banks are run mostly by a paid board of directors. Board members are elected by shareholders. The more shares an individual has, the greater their voting power is, and the more "say" they have in how the bank operates.
This one is simple. Credit unions are not-for-profit, while banks are for profit. Banks exist to earn profits for their shareholders. Because credit unions are not-for-profit, their earnings are passed on to their members by offering low interest rates on loans, and higher-paid interest rates on saving accounts. In some instances, credit unions will offer free checking accounts. This profit orientation affects the type of loans and services that each financial institution offers.
Credit unions mainly serve at the community level, which allows them to be more "in-tune" with their members' needs. In addition, they serve those belonging to similar organizations, such as teachers, firefighters, airlines, universities, etc.