How Is a Credit Union Different From a Bank?
Many people don’t know the difference between credit unions and banks. At first glance, the two institutions are very much alike. In general, they both have checking accounts and savings accounts. Both have auto and home loans. Both have branches to deposit or withdraw money and both issue checks and debit cards. However, underneath the exterior, there are some subtle differences that have a profound effect on the quality and price of the products and services you receive, including:
1. Credit unions are not-for-profit, banks are for-profit.
“Not-for-profit” means that all income that a credit union collects during the year is required by law to be given back to the account holders (or members with credit unions). It can be in the form of a check at the end of the year, a higher return on savings the next year, a lower rate on loans the next year, new products or services, new/better branches, or one of a number of other ways. In contrast, banks are in the business to make a profit for their shareholders using the shareholder’s money.
2. Credit unions are owned by the members, banks are owned by shareholders.
Credit unions are democratically owned and run. Every single member, no matter how much money or how little money they have in their account, owns a part of the credit union and gets exactly one vote in decisions made. Banks are run by shareholders, and the shareholders who own the most shares, have the most influence.
3. Credit unions, because they are not-for-profit, do not pay corporate taxes, banks, however, are for-profit institutions and must pay taxes. Because of this, credit unions have less money going out, so that’s more money that can stay in your pocket. These reasons and others give credit unions huge advantages over banks: Better rates, higher dividends and lower fees.
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