It may seem like a distinction that doesn’t really make a difference, but it matters. A lot. You have to be a member of a credit union in order to take advantage of its products and services. And when you become a member with your initial $5 deposit in your savings account, it means you’re a part-owner of the financial institution, not a customer. You are a shareholder. And contrary to a bank, where you have no say over how things operate, at a credit union, members get to vote on, and can even serve on, a volunteer Board of Directors, which oversees the credit union’s operations. These elections take place at the credit union’s annual meeting.
But those aren’t the only differences between a bank and a credit union. A bank is beholden to the group of investors that own it and who expect a certain return on its investments. That typically means that banks charge higher fees and more (and higher) rates on loans to maximize the investors’ return. In contrast, the profits of a credit union benefit the members in the form of higher dividends and interest, lower loan rates, higher rates of return on savings deposits, and lower costs on services (sometimes as low as $0, which, you have to admit, is pretty low).
NOTE: This entry is adapted from an e-book we wrote on the difference between credit unions and banks. You can download the full e-book here.
Equal Housing Opportunity Lender