In the world of banking and finance, individuals and businesses have various options for managing their money and accessing financial services. Two common choices are banks and credit unions. While they share similarities in providing financial products and services, they also have distinct differences that can significantly impact their members. In this informational article, we will help you understand the difference between banks and credit unions and explore the many benefits of being a credit union member.
Banks: Typically for-profit entities
Banks are financial institutions that offer a wide range of services, including checking and savings accounts, loans, credit cards, investment products, and more. They are typically for-profit entities, owned by shareholders or investors, and their primary objective is to generate profits. Banks are regulated by federal and state laws, and they are subject to oversight by government agencies, such as the Federal Reserve and the Office of the Comptroller of the Currency (OCC).
Credit Unions: Focuses on community and membership
Credit unions, on the other hand, are not-for-profit financial cooperatives owned and operated by their members. They exist to serve their members’ financial needs rather than to maximize profits for shareholders. Members of credit unions share a common bond, such as being employed by the same company, belonging to the same community, or having a similar interest or affiliation. These institutions are also regulated, but their oversight comes from the National Credit Union Administration (NCUA) and members’ funds are insured up to $250,000.
The Key Differences Between Banks and Credit Unions
1. Ownership and Governance
The fundamental difference between banks and credit unions lies in their ownership and governance structures. As mentioned earlier, banks are owned by shareholders or investors, and their main goal is to maximize profits for these stakeholders. In contrast, credit unions are owned and controlled by their members, who have equal voting rights regardless of the amount of money they have deposited in their accounts.
2. Profit Motive
Due to their for-profit nature, banks focus on earning profits and often prioritize serving the interests of their shareholders. This may lead to higher fees, interest rates, and service charges. In contrast, credit unions are not driven by profit motives. Any surplus they generate is typically reinvested in the form of lower interest rates on loans, higher interest rates on savings, and improved services for their members.
Recently, a bigger bank has been fined by the Consumer Financial Protection Bureau for allegedly imposing illegal fees and withholding promised rewards. With these types of incidents becoming more common with bigger banks, more regulations are likely on the way.
We are here to reassure everyone that these kinds of illegal tactics are not tolerated, especially in myPSFCU. We also have tools and resources that come with your myClub and myPremium checking accounts to help you keep track of any changes in your credit report.
3. Membership Requirements
To become a member of a credit union, individuals must meet specific eligibility criteria based on the credit union’s field of membership. This can include belonging to a certain community, being employed by a particular company, or having ties to a specific organization. Banks, on the other hand, are open to the general public, and anyone can become a customer by opening an account.
myPSFCU has a community charter and anyone living, working, studying, and worshipping in our community is eligible to become a member. Learn more about our eligibility requirements here.
4. Product and Service Offerings
Both banks and credit unions offer a similar range of financial products and services, such as checking and savings accounts, loans, credit cards, and investment options. However, credit unions may have a more localized focus and could tailor their offerings to suit the needs of their specific membership base.
5. Interest Rates and Fees:
Credit unions often offer more favorable interest rates on savings accounts and loans compared to banks. This is because, as not-for-profit entities, credit unions can return their earnings to members in the form of better rates and fewer fees.
6. Technology and Accessibility:
Banks may have a competitive edge when it comes to technology and digital banking solutions. Larger banks usually have more extensive resources to invest in modern online banking platforms and mobile apps. However, credit unions have been catching up in recent years, improving their digital offerings to enhance member convenience and accessibility.
In summary, both banks and credit unions play vital roles in the financial industry, but they have distinct differences in ownership, governance, membership, and their overall focus. While banks are for-profit institutions that serve a broad customer base, credit unions are not-for-profit cooperatives that cater to specific communities or affiliations. Credit unions offer several benefits to their members, including cooperative ownership, personalized service, lower fees, better interest rates, community involvement, financial education, and a member-centric approach.
We are here to help you achieve your financial goals. Our top priority is to make sure you are equipped with the right tools and resources through your financial journey. From getting your first car to securing your first mortgage, myPSFCU is ready to help you become a financially responsible individual.