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3 differences between a credit union and a bank

10th September 2021 Print

When deciding how to save and manage your money, you have several options from which to choose. If you don’t know the difference between many of these options, selecting the right one can seem difficult.

For example, perhaps you’ve heard of credit unions, but because they appear to offer the same services as banks, you don’t know what makes them unique. Keep reading, if so. Credit unions are actually quite different from banks in a number of ways. The following are among the more noteworthy:

Credit Unions are Not Profit-Driven

This is the main difference between credit unions and banks. To qualify as a credit union in the United States, an institution must be not-for-profit.

This one key difference may help you better understand why more people are turning to credit unions for their financial services needs. When the goal of an institution is to make a profit, that can sometimes mean said institution’s owners will permit delivering inferior service if doing so helps the business save money.

Credit unions are different. They aren’t legally allowed to be profit-driven. Thus, the goal of a credit union will typically be to provide customers with the quality of service they deserve.

Credit Unions Are Member-Owned

If you pay attention to the differences in the ways credit unions and banks are described, you might have noticed that people who use banks are referred to as customers, while people who use credit unions are referred to as members.

This is due to the roles that members of credit unions play. Credit unions are owned by their members. Although a credit union is to some degree run by a board, that board consists of members who other members voted to elect. 

Essentially, all members of a credit union have the opportunity to influence key decisions about how the institution operates.

This is another major difference between banks and credit unions. It also explains why credit unions often tend to provide exceptional service. The members of a credit union are unlikely to make decisions that are not in their best interests.

Lower Fees

It’s impossible to say with total confidence that a credit union will always offer lower rates and fees than a bank will offer. Many factors can contribute to the cost of doing business with any type of institution.

That said, it’s frequently been determined that credit unions do tend to offer more affordable fees. They’re also often more likely than banks to approve loans. This isn’t because they engage in predatory lending, but instead because members who are familiar with the community and one another can more easily determine when approving a loan is a good idea. 

None of this should be mistaken for professional financial advice. You do need to be careful when making decisions about your money. That said, because many people don’t understand the differences between credit unions and banks, they often don’t realize that choosing a credit union over a traditional bank may be the better financial decision. 

Consider researching the differences between a bank and credit union even further to determine which is best for you.