Many people confuse credit unions with banks or assume the two institutions are interchangeable. Although credit unions perform many of the same functions as banks, there are important differences.
What Is a Credit Union?
On the surface, credit unions are virtually indistinguishable from banks. They offer savings accounts, checking accounts, loans, credit cards, and other financial products.
Although credit unions are not insured by the Federal Deposit Insurance Corporation, which protects customers’ money up to $250,000, credit unions have similar federal protection through the National Credit Union Administration.
Credit Unions vs. Banks
According to the Credit Union National Association, credit unions vary from banks in several important ways.
Unlike banks, credit unions must be not-for-profit entities. This status is distinguishable from non-profit charities and other organizations, which are funded by donations. As a not-for-profit institution, a credit union’s main goal is to make money for its members. This is different from a bank, which is primarily focused on making a profit for its shareholders.
All Members Are Owners
Banks are owned by their shareholders, whereas credit unions are owned by their members. Furthermore, a credit union’s board members are elected from among the credit union’s members.
Credit unions are also distinguishable from banks in that their membership is limited to people who meet certain conditions. There are credit unions for teachers, firefighters, social organizations, and members of certain communities.
The good news is membership persists even if the member fails to meet the original membership qualification requirements later on.
Growing Popularity of Credit Unions
Bankrate reports that credit unions are increasingly popular in the United States. There are currently approximately 7,000 credit unions in the country. Many people have turned to credit unions as an alternative to traditional banks in the wake of the economic recession and numerous bank scandals. Other advantages include:
Credit unions also appeal to some people because they tend to offer lower fees and more flexible terms, although this is not always accurate. According to Nerdwallet, credit unions usually provide their members with better interest rates and lower fees, but consumers may be able to find better deals by shopping around.
Superior Customer Service
Because credit unions are focused on their members, rather than their bottom line, they rank much higher than banks when it comes to customer satisfaction. According to the American Customer Service Index, credit unions performed 9.7 percent better than banks in customer satisfaction between 2010 and 2014.