How Is a Bank Different From a Credit Union?
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Structure
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The biggest difference between a credit union and a bank is its structure. A credit union is a non-profit cooperative owned by its members, while a bank is a for-profit privately owned or public corporation owned by private investors. In addition, the insurance fund for credit unions differs; it's the National Credit Union Share Insurance Fund. Like FDIC-insured deposits, those insured by the NCUSIF are fully backed by the faith and credit of the U.S. government.
Membership
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Banks are open to just about anyone, regardless of occupation or geography. But to become a member of a credit union you must have some sort of common thread that binds. That thread may be the neighborhood or region where you live, or your membership in another professional organization. For example, there are credit unions for police officers and for postal workers and their families.
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Function
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As a for-profit, banks are driven by their ability to make money. The pre-eminent function is the bottom line. On the other hand, credit unions treat a member's deposits like shares and earnings are treated as dividends. The credit union's "earnings" (above and beyond its reserves) are brought back around to its membership in the form of better savings rates, stronger loan terms and conditions or more offerings for members to tap into.
Services
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Generally speaking, banks emphasize commercial and consumer accounts and trusts where credit unions are focused more on consumer deposits (savings) and lines of credit. In addition, banks offer a wider array of services, though more and more credit unions are adding products, including investment accounts like IRAs and credit cards. Credit unions can offer more competitively-priced products, in part, because they don't have to pay federal and local taxes like banks since they are a not-for-profit; in turn, the savings may be passed on to its members.
History
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The first bank started more than a century before America's first credit union. The coveted title of first bank belongs to a bank in Philadelphia, which got its start in 1791. Though the first credit union globally was started by a group of weavers in England in 1844, it took another 64 years before the U.S. got its first credit union, which was started by a Massachusetts banking commissioner and a Boston merchant.
Establishment
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Anyone can start a credit union or a bank. In the case of a credit union, a group with a thread that binds must organize and drum up the support of at least 500 members. From there, an organizing committee, board of directors, and a financial expert must be identified and an application is filed with the National Credit Union Administration. Starting a bank is equally time-consuming, but those who want to do so need only be investors and don't have to share a common job or geographic location and would-be bankers must apply with the FDIC, as opposed to NCUA.
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