At a glance, credit unions and banks might not seem all that different. Both financial institution types offer various loans and accounts, how different could they be? The truth is there is actually a lot that separates credit unions from banks. In this post, we’ll explore these distinctions to help you form an opinion on the question many people have: are credit unions better than banks?

Ownership Structure

This is one of the biggest and most important differences between credit unions and banks. Banks are owned privately by a person or group of people who all own a percentage of the bank and its assets, called shares. Credit unions are owned by their members. When you become a member at a credit union you will have to purchase one share of the credit union, usually for a cost of around $5 to $25. This seemingly minor distinction holds significant implications for how these institutions operate. It affects the criteria for granting loans, the interest rates applied, and even your ability to influence the organization’s decisions. Many credit unions, including True Sky, are overseen by an elected board of volunteer credit union members. Their role is to ensure that the credit union always operates in the best interests of its members. Being part of an institution where your voice matters is just one of the many advantages of being a credit union member. Curious about the other benefits of being a member of a credit union? Check out our blog post about them here!

Organization Type

While credit unions and banks offer similar services on the surface, they fundamentally differ in their organizational types. Banks are classified as for-profit organizations or businesses. Just like any business, banks exist primarily to generate income for their shareholders. They achieve this by selling the opportunity to use a portion of the funds they hold in customer deposits to obtain loans, collecting interest as revenue. Credit unions, although also providing loans and charging interest, operate differently. Unlike banks, credit unions are not-for-profit organizations, which are distinct from non-profit organizations (see this post from the U.S. Chamber of Commerce to learn more about the differences). Not-for-profit organizations exist for a purpose other than generating income. For credit unions, this purpose is to facilitate loans for members to make significant purchases, such as homes or cars. Any revenue made through interest on loans credit unions make is distributed back to members in the form of higher savings rates, low or no fees, and community outreach programs.

Deposit Insurance

Most people are aware that the money deposited into banks is insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC), a U.S. government corporation established in 1933 to safeguard depositors’ savings in case of bank failure. What you may not know is that credit unions offer a similar level of government-backed deposit insurance through the National Credit Union Administration (NCUA). To gain a deeper understanding of how the FDIC and the NCUA protect your deposits, check out these links to the FDIC and NCUA websites.

Membership Requirements

Credit unions typically serve specific geographic areas, such as cities or states, and often impose eligibility criteria for membership. One common requirement is that members must either live, work, or worship within the credit union’s operational area. In contrast, banks are not restricted to a particular area, and larger banks have a nationwide presence. You might wonder whether having a credit union as your primary financial institution would pose challenges if you plan to move or travel. Fortunately, credit unions have a solution known as the credit union co-op. This system enables you to conduct transactions at any participating credit union across the country, as if it were your own. Currently, there are over 5,600 participating locations across all 50 states, encompassing hundreds of regional and state credit unions. To find nearby co-op credit unions, you can click here.

Choosing The Right Option

Determining whether a credit union or a bank is the right fit for you depends on your unique financial circumstances and objectives. If you’ve never considered joining a credit union before, We hope this post has answered some of the questions you may have had about why many individuals believe that credit unions better align with their financial needs, and that you have a clearer understanding of the fundamental differences between credit unions and banks. If you’re interested in learning about the benefits of joining a credit union, check out our blog on the subject here.

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