Credit unions vs. banks: Is there really a difference?

Money Matters

By Jennifer Coyne, Bayport Credit Union

On the surface, there doesn’t appear to be a big difference between credit unions and banks. Both are financial institutions that offer checking accounts, loans, business banking and even investment and insurance services. Although credit unions and banks have some similar products, they work off of an entirely different business model.

The number one difference between the two is that banks are for-profit institutions and credit unions are not-for-profit. This fundamental difference influences how each institution operates.

How banks and credit unions are similar

Chances are you’ll find what you need at either a bank or a credit union. Both provide deposit and loan accounts, small business banking, direct deposit, mobile banking, ATMs and overdraft protection. And while larger banks may have bigger ATM networks, some credit unions join ATM networks that allow surcharge-free access nationwide.

Most credit unions and banks insure deposits up to $250,000. The Federal Deposit Insurance Corporation provides insurance for banks, while the National Credit Union Administration provides insurance for credit unions.

The difference between credit unions and banks

Banks are for-profit institutions. Banks pay taxes on the profits they earn, and many are publicly traded companies with paid board members who focus on making money for a group of shareholders. Because of this, they often charge higher fees than credit unions and pay lower interest rates to customers.

Credit unions are not-for-profits. While they do pay payroll taxes and many state and local taxes, they are exempt from corporate income taxes. Just like a bank, credit unions return profits to their shareholders. The main difference is that credit unions are member-owned, meaning every member is a shareholder. Therefore, credit union profits are returned to all members through charging less interest on loans and lower fees while paying higher rates on savings accounts. In addition, credit union members elect a volunteer board to manage the credit union. Because the board is often composed of members who also do their banking at the credit union, they focus on serving their communities’ needs rather than generating profits for outside shareholders.

Customer vs. member

You may have noticed credit unions refer to account holders as members, not customers. This is because anyone can open an account with a bank as long as he or she doesn’t have a poor banking history regardless of where he or she lives or works. However, a credit union is a cooperative made up of members who work in the same industry or live in the same community. While this may sound restrictive, several Hampton Roads’ credit unions offer membership eligibility to the entire local area.

Personal service

As part of a community, credit union members often receive more personalized service than what large banks offer. For example, credit unions may be more willing to approve loans for their members, and they may provide financial education and outreach.

While branch locations may be limited to the area each credit union serves, thousands of credit unions have now joined together to provide shared branch services so that members can do business at credit unions across the country as if they were at their local credit union branch.

In a nutshell, credit unions and banks offer similar products but aren’t the same. Credit unions generally provide more personalized service and give you a say in how the financial institution is run. Also, because they’re not for profit, credit unions may also offer more competitive rates, lower fees and an easier loan approval process.

For the first time in 10 years, large bank mergers are on the rise. If you prefer to bank local, now may be the time to check out a credit union.

Jennifer Coyne is vice president of business banking for Bayport Credit Union. She can be reached at 757-873-4037 or by email at Bayport’s web address is

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