Do Credit Unions Have the Same Laws As Banks?

Many people lack a true understanding of the differences between banks and credit unions. At first glance, they seem like the same thing --- financial institutions that serve customers through a variety of functions. However, there are vast differences between the two and one might not know unless they've banked at both. Here are some key legal differences between banks and credit unions.

Filing Status

One of the biggest differences between credit unions and banks is that the government classifies credit unions as being not-for-profit and exempt from federal taxation (banks are considered for-profit and taxed federally). This classification allows credit unions to offer lower interest rates to their members.

The Owners

While banks are owned by investors, credit unions are owned by their members. When you join a credit union, you share ownership. Any profits made are distributed back to you and other members via dividends (versus the investors).

Interest Rates and Fees

Since credit unions hold a not-for-profit status, they are able to have lower interest rates (as much as 2%) on loans and credit cards and less fees. Banks can sometimes do this, depending on their financial health and any additional promotions they may have going to lure potential borrowers into their facility.

Insured

Like any reputable bank, federal credit unions are also insured. Under the National Credit Union Association (NCUA), the money in your credit union account (up to $250,000) is protected. Banks are protected by the FDIC, which also ensures funds up to $250,000.

Eligibility to Join a Credit Union

Joining a credit union isn't quite as simple as joining a bank, since a credit union requires that its members share a common ground. However, almost anyone can qualify to join a credit union, either through work, family, where you live or an association you belong to. Call the Credit Union National Association for help on finding a credit union in your state.