Credit Unions Vs. Savings Banks
Credit unions are becoming the financial institution of choice for many consumers because they offer higher interest rates and lower fees. For many, the most important difference is the level of customer service, but there are also significant differences in the structure of credit unions and their operations as compared to savings banks.
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Ownership
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Credit unions are owned by their members. Each depositor in a credit union is an owner with voting rights. Bank customers have no ownership or voting rights. Only a bank's investors and paid board members have voting privileges.
Structure
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The primary difference in the structure between the two types of financial institutions is that banks are profit-driven organizations that share their profits with stockholders, whereas credit unions are not-for-profit organizations that pass along profits in the form of reduced or no-fee services and better interest rates. Credit unions are not subject to most federal and state taxes, which the banking industry considers to be an unfair advantage. Credit unions are controlled by a member democracy and are usually run by voluntary board members. Banks, on the other hand, are controlled by a small group of stockholders and paid board members.
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Fees and Interest Rates
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Credit unions can usually offer lower fees and sometimes no fees for certain services as well as higher interest rates on savings accounts and lower rates on loans and credit cards because their cost of doing business is considerably less than that of banks. Credit unions also pass on their profits to their members in the form of better interest rates and free or low-cost services. Banks pass on their profits to investors and stockholders. However, credit card rewards and other types of rebates are often better with bank-issued credit cards.
Deposit Insurance
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Savings banks are insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC insures depositors for up to $3,000,000. Credit unions are chartered by the National Credit Union Administration (NCUA). The NCUA also insures federal and most state charter credit unions through the National Credit Union Share Insurance Fund, which is a federal fund backed by the United States government.
Services
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Savings banks do not have memberships; therefore, anyone can do business with a savings bank. Only members of a credit union are eligible to take advantage of its financial services. Credit unions have members, not customers. Not everyone is eligible to join every credit union. A credit union's charter will describe its "field of membership" as an employer, church, school or community. However, according to the Credit Union National Association, almost everyone in the United States can join a credit union. While large banks are trending toward automated and impersonal customer service, credit unions pride themselves on a high level of personal member services.
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