Credit unions and banks are more similar than they are different. Both are financial institutions which offer a variety of services to their depositors, ranging from savings accounts to home loans. The underlying philosophy behind banks and credit unions is different, however, with the key distinction being that banks are run for the purpose of generating profits, while credit unions are generally run as non-profit, community-based institutions.
The practice of banking is ancient; for almost as long as people have had money, bankers have been present to deal with it. Credit unions date to the 1900s, when they were initially established as workers cooperatives. In the 20th century, several industries began creating their own credit unions, allowing members of specific industries or employees of particular businesses to enjoy credit union membership, and credit unions were also opened more generally to the public.
In a credit union, people must be members in order to become depositors. Membership is usually as simple as opening up a new account with a minimum deposit. Members become part owners in the credit union, receiving shares which are based on how much they have on deposit. People with large amounts of funds get more shares, entitling them to a larger share of the credit union’s profits from investing and lending.
The board of directors at a credit union is classically elected or comprised of volunteers, and members all participate in elections and major financial decisions. By contrast, a bank is owned by a private company, with a board appointed by the company or shareholders in the company. Depositors in the bank can receive interest on certain types of accounts, but not all.
Credit unions focus on promoting thrift, encouraging people to save and use their money wisely. In addition to offering conventional savings, credit unions usually offer share draft accounts, otherwise known as checking accounts, and they can provide loans and issue credit cards to their members, usually at low rates of interest. Many credit unions also promote community development, keeping money within a community and making it easy for members to invest in community projects. The credit union model is often promoted as a technique which could be used to promote sustainable development from the ground up, by encouraging individual communities to develop financial independence, rather than injecting capital into an area.
Banks can be locally based, but many have multiple branches across a large region. Some banks operate internationally, moving huge amounts of money on a daily basis. For customers, banks provide the convenience of international access, and they can sometimes offer high interest rates on deposits due to their involvement in high risk, high yield investments.
A credit union often prides itself on personalized, friendly service and the strength of its connection in a community. Some credit unions operate more like banks, and in some cases, a credit unions may even be run as for-profit institutions which operate along the credit union model. Banks, by contrast, tend to be highly standardized and focused on providing consistent, professional service, not necessarily customizing services to the needs of particular clients.
In nations where the government guarantees funds on deposit up to a certain amount, banks and credit unions are usually both covered, making them equally safe for depositors. People who want more information about whether or not their funds are insured should contact the agencies which handle deposit insurance to see if their financial institution is listed as a member.