Difference Between Credit Union and Bank

Difference Between Credit Union and Bank

Anyone is quite familiar with the financial system. We store our savings here. Our salaries are also deposited there. In case we desire to buy a car or a property, we take out loans from the financial system. So, the financial system forms an integral part of our lives.

It is better to store our finances in banks. It allows us to be assured that our money is in good hands. When we store our money in the financial system; the system is also able to lend money to other people when they need. It is how the system works.

Very recently, there has been a new concept of credit unions. We had been using the terms without knowing the difference between credit union and bank. While we may consider that both  are related to finance and would have the same meaning; that is not the case. Yes, there is a difference between bank and credit union. It would be incorrect to assume that both these terms are identical when there is a subtle difference in their meaning. In this article, we will find out what’s the difference between a credit union and a bank.

Definition of Credit Union

A credit union is defined as a non-profit economic establishment created and governed by a community. One of the major characteristics of this cooperation is that it is a not-for-profit establishment with lower fees, higher interest rates, better customer care, as well as other benefits.

Within the specified requirements, anyone can enjoy services such as business, checking and savings accounts, and loans. This is why credit union vs bank are often in comparison and considered to be similar. But there are still some clear-cut discrepancies that exist between the two.

Some of the characteristics of this institution include the following.

  • It is owned by a community of customers and is a non-profit. It could be a church, company, employee group, school, etc. Being a member of such communities automatically (in most cases) earns you a membership.
  • Members enjoy better customer care, tax exemption benefits, and low interest rates.
  • Credit unions are usually more laid back and less innovative than other organizations when it comes to technology and other modern features.

An interesting fact is that recent records reveal that federally insured non-profits in the US hold about 1.5 trillion in assets.

Definition of Bank

A bank is a profit-based financial establishment licensed to receive cash deposits, make loans, and offer other financial services. Unlike the latter in the bank vs credit union comparison, this profit-based cooperation is open to just about anyone who meets the necessary requirements. It is more widespread, catering to clients from different communities.

There are different types including commercial, retail, and investment. Irrespective of what type it is, every financial institution of this nature is regulated by the central bank or the government.

Here are some characteristics usually associated with this organization.

  • Customer service is usually cold, impersonal, and somewhat robotic.
  • Their fees are higher because they do not enjoy tax exemptions seeing as they are profit based.
  • They have more branches, which makes it easier for their customers to access them.
  • They are open to the latest technological advancements like mobile applications.
  • Interest rates are generally even lower compared to the non-profits.
  • Customers enjoy a plethora of financial services.

When it comes to choosing between the two, potential members weigh their interests to determine which of them is better. Better still, you can choose to work with both and use them accordingly. However, banks are generally more common and convenient.

Credit Union vs Bank Comparison Table

Let us now have a look at what’s the difference between a bank and a credit union in a tabular form.

Basis of ComparisonCredit Union Bank
What it means It is a close-knit community where members store their money, which is then provided to members at low rates It is an entity that is sanctioned by the authorities to provide financial services to its clients
Who deposit the money The finances are provided by the members The finances are provided by the clients
Type of entity It is mainly non-profit It stores money at lower rates but lends at higher rates; thereby making some gains.
What is its motto It strives to provide better service to the members The underlying motive is to make profit
Reviews It has fewer services but lends at lower rates It provides a wide range of services but lends at higher rates

Conclusion of Main Difference Between Credit Union vs Bank

We have tried to provide details about the difference between commercial bank and credit union in simple terms. While a credit union is formed by members and keep their money that is lent at low rates, a bank offers a wide range of services and lends at higher rates.

We sincerely hope that you have been able to comprehend the difference between a bank and a credit union. We look forward to hearing from you.