What is the difference between banks and credit unions?

credit unions, Cooperativas de Crédito

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From the outside, banks and credit unions seem very similar. They both offer checking and savings accounts, financial products like CDs and specialized accounts, and the rest of the services we’ve come to expect. You drive through teller windows or stop in at a branch, deposit your checks or withdraw money, and occasionally meet with personnel to discuss your financial needs. ATMs, debit and credit cards, loans and mortgages are all on the menu at most banks and credit unions.

Fundamentally, a bank is a business that holds onto your money for you and uses it to create profits by investing that money or loaning it out to other customers.  When you make a deposit or buy a savings product, you’re essentially loaning money to the bank. It pays you back in interest for that loan, but rates can vary widely depending on the bank and the way you’re putting money in. Banks then lend that money to other customers and invest it, which is how they make their money.

While your experience at a credit union may be nearly the same as at a bank, the structure and reasoning behind the scenes couldn’t be more different. Some of the small details — calling a checking account a “share draft” or customers “members” are just a few of the differences in a credit union.  Credit unions are different from banks; when you deposit your money, you’re actually buying shares of the company. Rather than being a customer, you’re part owner: That’s why your account is called a “share.” There’s no board of directors or corporate interest controlling the credit union’s choices because members agree upon everything. Even the executives and directors are volunteers, elected by vote.
While there is no short answer as to which one is better, a bank or a credit union, you should ask which one is better for you.  Are you living paycheck to paycheck? If you are it could make more sense to simplify and go with a large bank that can quickly respond to your needs. If you’re trying to build up your savings, it may make more sense to “pay yourself first” by using a share account that’s not as easy to get to and generally has a higher rate of return.
By Addam Fera
W M Law Attorney
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Jeffrey L. Wagoner


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