For many people, banks and credit unions are considered one and the same because they both fulfil similar purposes and provide the same kinds of services. However, while it’s true that both types of financial institutions are in the interest of lending and banking, there are some key differences between a bank and a credit union. As similar as the services they offer can be, the way they go about attaining their goals and structuring their businesses are quite different.
In the end, choosing between a bank and a credit union comes down to the personal affinity of the individual and what that person hopes to accomplish through participation with a bank or credit union in Kingsley, MI. Both institutions are governed by similar laws and codes, but each has its own unique set of benefits and protections that may better dovetail with the financial needs of a given person. Keep reading to learn more about the differences between banks and credit unions and how they function.
Organizational Status and Ownership
One of the simplest distinctions that can be made between banks and credit unions is their organizational status, also known as their tax status. Banks are considered for-profit businesses, while credit unions are set up as non-profits. Also, banks can be privately owned or publicly traded, while credit unions are member owned. Credit union participants are called members, while bank participants are customers.
Rates and Fees
People need banks and credit unions to conduct common banking operations, as well as to lend money for personal needs, automotive purchases, mortgages, and business ventures. However, the cost of these services marks another point of distinction between banks and credit unions. Banks offer lower rates of interest on savings and have higher fees, while credit unions pay more interest on savings and have lower fees. Online credit unions can pay even higher rates of interest on savings.
Convenience and Accessibility
Another differentiation one can make between banks and credit unions is visible in how customers and members interact with the institutions. For example, banks will usually have more branches open than the average credit union. Most credit unions are consolidated into fewer, more specialized branches.
Banks generally offer greater diversity and more variety when it comes to services such as checking accounts, savings accounts, loans, and mortgages. Credit unions focus on a smaller line of services, but they place extra emphasis on offering high-quality products with a focus on customer service. Both types of financial services offer basic services like checking accounts, savings accounts, business accounts, and loans.
Both banks and credit unions, as well as their customers and members, are protected against financial loss of deposits through insurance provided by each institution’s respective insuring body. Money deposited in a traditional bank is insured by the FDIC, or Federal Deposit Insurance Corporation, while credit union deposits are protected by the NCUA, or National Credit Union Administration.
While both banks and credit unions meet the banking and lending needs of the public at large, the way they go about doing it is quite different. To learn more about the differences between banks and credit unions, contact Forest Area Federal Credit Union at (231) 879-4154.