Difference between Bank and Credit Union
A bank is a financial institution that services its customers by accepting deposits and invests these deposits into financing activities. These banks are in service to their customers and on the other hand make their investors rich. Depending on the country, the financial activities of these banks have been regulated by the government for a very long time. These banks offer services like loan facilities, insurances and fund investments other than accepting deposits. A credit union on the other hand is also a type of financial institution, run by a cooperative wherein the entity is controlled and owned by its members. The main purpose of a credit union is to serve loans with lower interest rates, thrift and financial services exclusively to its members.
Banks are mainly owned by shareholders or investors. The control of interest in the bank is determined by the number of shares a shareholder has, or the amount of capital that they have invested in it. The bigger the capital or the more the shares a member holds the more control he has. Credit union on the other hand is owned by the members. The election of board of directors in this institution is not based on the number of shares or the amount of money he or she invested but through voting by the members. A one man one vote system is observed regardless of the amount of money he or she invested.
Banks cater to almost all types of individuals and companies. They offer loans, investments and insurances to individuals, corporations and other institutions as well. With regards to their services, as long as an applicant meets the banks specific set of requirements for each service; they can avail and enjoy all of these. Credit unions on the other hand provide services such as that of the banks but they only offer these exclusively to their members. If in case any individual on the outside would want to avail of the credit union's services, they must fist become a member.
Banks offer loans with an interest rate that is in conformity with the rules and regulations of the government regarding money lending. Usually, these rates range from 8.5% to 12% every year. Credit unions on the other hand offer lower interest rates to their members. They can go way below the prevailing interest rates in the market and every credit union because of its exclusivity within its members.
- Both banks and credit unions offer a safe place to secure money for the general public.
- They also offer the same services such as savings, loans, and investment opportunities.
- The difference lies in the control of the institution, wherein the banks are controlled by the board of directors and the credit unions are controlled directly by it members.
- But the winning factor of the credit union compared to a bank is the convenience of acquiring financial assistance. Just by being a member in a credit union entitles you to loan money, and at the same time get interest rates that are way lower than that offered by banks.