What is the difference between a bank and a credit union?
From the exterior of the building, a bank and a credit union can look very much alike. Inside, too, there’s a strong resemblance between one and the other. In both institutions you’ll see people standing at teller windows making deposits and withdrawals.
You’ll see other people seated, conversing with officers, negotiating loans. The similarities don’t end there. But what’s most important to know are the differences and how they can affect your choice.
Video: The Difference Between Credit Unions and Banks
For-profit and not-for-profit
A credit union, unlike a bank, is a not-for-profit financial cooperative. Many were initially instituted and continue to operate for the benefit of individuals who share an affiliation, such as with an employer. Because they operate as not-for-profit institutions, credit unions are exempt from federal and local taxes. They pass these savings on to their members by charging lower-than-market interest to borrowers and paying higher-than-market interest to depositors. Operating funds for a credit union come from shares purchased by its members. A bank is a profit-making corporation owned by stockholders and makes financial services available to the general public.
Deposits in both are insured
Money deposited in banks is insured by the Federal Deposit Insurance Corporation (FDIC). Funds held by a credit union are similarly insured by the National Credit Union Administration (NCUA), the federal agency that administers the National Credit Union Share Insurance Fund (NCUSIF). The NCUSIF, like the FDIC’s Deposit Insurance Fund, is a federal insurance fund backed by the full faith and credit of the U.S. Government. Note: By far most, but not all, credit unions are federally insured. Before signing up with a credit union, make sure that it is indeed federally insured.
How credit unions got their start
The earliest financial cooperatives date back to the early 1800s in Europe. In 1900, the concept took root in Canada. About 10 years later, the first credit union in the United States was established. Edward Filene, a merchant/philanthropist, and Pierre Jay, banking commissioner of Massachusetts, successfully campaigned for passage of the Massachusetts Credit Union Act, which served as a model for a national law. The Federal Credit Union Act was signed by President Franklin D. Roosevelt in 1934. The NCUA became an independent federal agency in 1970 and the NCUSIF was formed to insure credit union members’ deposits.
Tough times have hurt them both
These days, the news is full of stories about the dire straits of many financial institutions, including some of the nation’s largest banks. It may appear that credit unions have generally avoided catastrophe, but that doesn’t mean they are not subject to economic ups and downs. Basically, they are local institutions. In areas where unemployment has skyrocketed and housing prices have plummeted, a credit union can be hurt as much as any other local small business. Recently, some credit unions have closed; weak ones have been taken over by stronger ones.
Video: Banks versus Credit Unions
Choosing bank or credit union . . . or both
The first step to take in determining whether to do your financial business with a bank or a credit union is to make sure you would be eligible for membership in a credit union. Not everyone is. You may be able to join a credit union through your employer, church, military affiliation or some other group. Once you’ve established eligibility, visit banks and credit unions to develop a list of services (such as credit cards) offered, fees charged, interest rates charged and paid. Consider their geographic location, the convenience of ATMs and their operating hours. You may decide to use both banks and credit unions for different types of accounts and loans.
Top 20 United States credit unions (by reserves)
Navy Federal Credit Union
(888) 842-6328
State Employees Credit Union
(919) 857-2150
Pentagon Federal Credit Union
(703) 838-1000
Boeing Employees Credit Union
(206) 439-5700
Orange County Teachers Federal Credit Union
(714) 258-4000
The Golden 1 Credit Union
(916) 732-2900
Security Service Federal Credit Union
(210) 476-4000
Suncoast Schools Federal Credit Union
(813) 621-7511
Alliant Credit Union
(800) 328-1935
American Airlines Federal Credit Union
(800) 533-0035
Kinecta Federal Credit Union
(310) 643-5400
America First Federal Credit Union
(801) 627-0900
San Diego County Credit Union
(877) 732-2848
Patelco Credit Union
(415) 442-7187
Digital Federal Credit Union
(800) 328-8797
Wescom Central Credit Union
(626) 535-1000
Star One Credit Union
(408) 543-5202
Alaska USA Federal Credit Union
(800) 525-9094
Citizens Equity First Credit Union
(309) 633-7077
Vystar Credit Union
(904) 777-6000