Although credit unions have been around in the United States since 1909, some people may not be familiar with them. These financial institutions offer the same products and services as banks. However, there are critical distinctions between the two, as the guide below explains.

How Credit Unions & Banks Differ

1. Members vs. Customers

When a person joins a credit union, they become a member, which means they are a co-owner. Members have a say on how the credit union operates and can vote on who serves on the board. Depending on the type of credit union, membership eligibility can be determined by where a person lives, works, or if they are active or retired military, among other factors.

A board of shareholders typically runs banks. These individuals make decisions on how a bank will price its products and services. People who open accounts at banks are customers and don’t have a say on the bank’s operational and pricing decisions. 

2. Not-for-Profit vs. Profit

Credit unions are not-for-profit entities that are exempt from paying federal and, in some cases, state taxes. Any earnings are returned to the members in the form of low interest rates on car loans, mortgages, and credit cards, among other products. 

Banks have a for-profit model. While they pay taxes on their earnings, surplus income is divided among the bank’s shareholders—not passed down to customers. To remain profitable, banks may charge higher fees on products and services and ask for higher interest rates on loans and credit cards. 

3. Member Service vs. Customer Service

Credit unions were originally organized to serve groups that were shunned by banks for loans or only had access to lenders that charged exorbitant interest rates. Members pooled some of their earnings so that they could have better financial opportunities. Today, credit unions continue to build on that model by considering a person’s unique circumstances on loan requests and providing superior member service. 

By contrast, bank customers often interact with a call center representative rather than a bank employee if they have questions or concerns. Banks, particularly large ones, have been known to have more rigid requirements when it comes to loan applications. Their for-profit model will generally put more emphasis on meeting shareholder goals.

These are just a few important differences between credit unions and banks. Founded in 1932, Spirit of America Federal Credit Union in Lincoln, NE, is 100% committed to providing excellent service and competitive rates and fees. Whether you’re in the market for an auto loan, mortgage checking account or credit card, the credit union has options designed for your unique money management needs. Your funds are also insured by the National Credit Union Administration. To learn more about becoming a member, call (402) 467-1102. Visit the website for additional  details.