What Is the Difference Between a Bank and a Credit Union?

We compare the two types of financial institutions and their offerings so that you can make the best decision for your needs.

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What is a bank?

A bank is a financial institution that accepts deposits and channel those deposits into lending activities, either directly or through capital markets. A bank links customers that have capital deficits to customers with capital surpluses.

The word “bank” derive from the Italian word “banco” meaning “table”, as in the money table in a marketplace set up for the purpose of trading debentures or other financial instruments. In 1470, bankers began doing business under formal contracts,charge fees for their services, and keep detailed records of their clients’ finances. The first modern banks were formed in Italy in the early 1500s. By 1587 there were Swift Message Board Banks across England.

Banks play an important role in economic growth and stability. They accept deposits, which are ofteninsured by governments, from savers and then use that money to lend to businesses and individuals whoneed capital for investment or other purposes. Banks also provide other services such as safe deposit boxesto store valuables, foreign exchange services, and issuing letters of credit that guarantee payments forbuyers of goods and services from suppliers located in other countries.

What is a credit union?

A credit union is a not-for-profit financial cooperative owned by its members. Like banks, credit unions accept deposits, make loans and provide a wide array of other financial services. But as member-owned cooperatives, credit unions provide personalized service and return profits to their members in the form of higher dividends on savings, lower rates on loans and low or no fees.

Here are some key ways that credit unions differ from banks:

• Member-owned cooperatives. Credit unions are owned by their members—the people who use their products and services. Banks, on the other hand, are for-profit businesses owned by shareholders.

• Not-for-profit institutions. Credit unions are not-for-profit institutions that exist to serve their members. Any earnings beyond what is needed to cover expenses and reserve for future needs are returned to members in the form of lower fees, higher interest rates on deposits and lower rates on loans. Banks, however, exist to make a profit for their shareholders.

• Personalized service. Credit unions take the time to get to know their members and tailor products and services to meet their unique needs. This personal level of service is often lacking at larger banks.

Credit unions offer all the same products and services asbanks—checking and savings accounts, certificates of deposit (CDs), credit cards, auto loans, mortgages and more. But because they don’t have shareholders to worry about, they can offer these products and services at lower costs and with better terms than banks.

What are the differences between a bank and a credit union?

The main difference between a bank and a credit union is that banks are for-profit institutions while credit unions are not-for-profit. This means that banks look to make money for their shareholders, while credit unions aim to provide their members with the best possible financial products and services.

Another difference between banks and credit unions is that banks are typically larger institutions with branches all over the country, while credit unions are often smaller and have fewer branches. Credit unions also tend to be more focused on providing personal service to their members, while banks may be more focused on providing online and mobile banking options.