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Why Choose a Credit Union vs. a Bank?


by Dallas Bergl

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Why use a credit union instead of a bank? This is a common question that we are asked. To best answer this question, it is helpful to explain what both of these organizations are and are not. Credit unions and banks are both financial institutions but this is where the similarities end. Let’s first briefly explore what banks are and then move on to credit unions.

Banks are for profit, generally shareholder owned companies delivering a wide array of financial services to the public at large. Banks are regulated by either the federal government or state regulators, depending on their charter. They are federally insured through the Federal Deposit Insurance Corporation (FDIC). As a for profit organization, their overriding concern is to use their resources as efficiently as possible to maximize earnings. This means that consumers are a means to that end. It does not mean that they do not care about their customers, but it does mean that the first question they must ask is how much income can we extract from our customers without driving those that are profitable to another financial institution. Banks have become so efficient at this process that the banking industry has repeatedly set record profits year over year for the better part of the past decade.

Credit Unions are not-for-profit organizations offering a wide array of financial services and they are owned by their membership. If you have an account with a credit union, you are a member and an owner. Membership is limited and you must be eligible in order to join. These requirements vary from credit union to credit union. As a member/owner, you have the right to both vote and run for the Board of Directors. You get only one vote regardless of how much money you have at the credit union and all of our directors are volunteers and receive no compensation for their service. This process guarantees that your credit union is looking out for your financial interests and not that of a small group of stockholders. Credit Unions are also regulated by the government, either Federal or State depending on their charter. Credit Unions are also federally insured (with the exception of a very small number of privately insured institutions). The federal insurance program for credit unions is the National Credit Union Share Insurance Fund (NCUSIF). This fund is arguably stronger than the banks insurance fund.

Credit Unions can and do make excess earnings (profit), however this money belongs to you the members, not stockholders or management. This money is used to fund required reserves to ensure a safe and sound financial institution. These reserves provide credit unions the ability to safely survive economic downturns, loan losses and periods of slower income growth. It is the goal of credit unions not to accumulate more reserves than their Board feels is necessary for their long term viability. In fact, most earnings are returned to the members in the form of lower loan rates, higher share deposit rates, fewer fees and better service. Some Credit Unions like INOVA FCU, also return excess earnings to the members in the form of bonus checks during those periods when earnings have out- paced reserve requirements.

In short, if you are looking for a financial institution where you are more than a dollar sign, a credit union is a great choice. Because you are the owner, your voice is always heard, it is your interests that comes first, not big profits. This may be the reason that Credit Unions have always outperformed Banks in their industry’s own survey of customer satisfaction among financial institutions. Studies have also indicated that the existence of credit unions has contributed to keeping the cost of financial services provided at banks lower due to the competitive pressure exerted by the credit union industry. Recently, a banking executive stated that their record profits would have been even higher if it had not been for the existence of credit unions. The best answer to “Why use a credit union instead of a bank?” is that your financial well being is always first with a credit union.