Credit Unions vs. Banks – The Choice is ClearObviously, banks and credit unions offer a lot of overlapping services. Both banks and credit unions take in deposits, administer savings and individual retirement accounts, and provide home loans in addition to consumer loans.
The key difference: Ownership structureBanks are corporations – owned by their stockholders.
Typically, with larger banks, these stockholders are Wall Street institutions. However, there are many smaller neighborhood and regional banks with more local ownership. Credit unions, on the other hand, are not owned by stockholders on Wall Street; we are owned by our members.
It is true, neither banks nor credit unions are in business to lose money. We both need to make profits on our goods and services to stay in business. The difference is this: When a bank makes money, they send their profits to their stockholders. When a credit union makes a profit, we pass it on to our members. This can be in the form of a dividend, better rates, technological investments and a variety of actions that bring greater value to members of the cooperative. And because we are not focused on pleasing distant stockholders through issuing a dividend every quarter, we can frequently offer services and loans with lower costs than banks.
Our mutual ownership structure gives us another advantage too: Wall Street can not pressure us to make unwise decisions for short-term gains at the expense of our membership. Every decision we make is solely in the long-term, best interest of our shareholders.
For example: In normal economic times, credit union and bank failures are very rare. That story changed during the mortgage crisis of 2008-2009. Leading up to the crisis, publicly traded banks were under intense pressure from Wall Street to make loads of questionable loans so they could keep short-term numbers up. Credit unions were free to make sound and rational decisions in the best interests of members, not Wall Street. According to information published by the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Association (NCUA), banks were failing at a rate 3 times higher than credit unions in 2008, and had an overall failure rate of five times that of credit unions.
In good times, credit unions have a great track record. And when times are tough, there is no comparison.