Yes, they're both financial institutions. Yes, they both offer checking, savings and loan accounts. But contrary to the popular adage, in this case, "what you don't know... can hurt you."
Here are the five most important differences between banks and credit unions, and their impact on you.
1. Shareholders versus Members
Banks have shareholders. Credit unions have members. The customers of a bank are not, generally speaking, shareholders. The customers of a credit union are members, and therefore, owners of the credit union. In other words, banks are in business to benefit their shareholders. Credit unions are in business to benefit you, their customer/owner/member.
2. Not-For-Profit versus For Profit
Credit unions are not-for-profit financial cooperatives. A bank is a for-profit corporation. What is the most important takeaway for you, the consumer? Excess earnings are returned to credit union members in the form of higher savings rates, lower loan rates and/or dividends. A bank's excess earnings are paid out to shareholders only.
3. Eligibility versus the Open Market
While banks are free to open accounts and provide loans to almost anyone, credit unions are limited to those people who qualify for membership. Before you decide that doesn't include you, do some investigating and research. Many credit unions offer membership based on religious affiliation, community and geographic guidelines and locations, as well as places of work.
4. Lower Loan Rates and Higher Savings Rates
Top perks of belonging to a credit union include opportunities to save with a higher rate of return or borrow at a lower rate of interest. Since credit unions are not-for-profit entities, they are focused on providing their members with great savings and loan interest rates.
5. A Stronger Emphasis on the Needs of Their Members/Community
Perhaps the most important difference between banks and credit unions lies in their commitment to their communities. Now, don't misunderstand. Banks value their customers and the communities where they are established. However, credit unions typically have a greater interest in, and often form partnerships with, local organizations (i.e. SPCA, Habitat for Humanity, local charities).
A credit union may or may not be the right choice for you. But with a mission of helping their members achieve financial success, along with the fact that as a member you are also an owner, it is an option worthy of consideration. Drop by and speak to your local credit union … it may be your best financial decision yet.
To learn more, visit Jefferson Financial Federal Credit Union here.