A Family Approach to Banking - Credit Unions

On the surface, credit unions seem very similar to banks.  They offer many of the same services, such as savings accounts, checking accounts, and loans.  The difference lies in the way credit unions are structured.  Unlike banks, they are not designed to make a profit, at least not in the corporate sense.  Credit unions are member-owned, but not just anyone can be a member of a particular credit union.  All members of a credit union must have something in common.  They could all work for the same company, all be members of a particular organization, or even all live in the same area. 

A Different Kind of Bank

As stated above, the fundamental difference between credit unions and banks is that credit unions are not seeking profit and they are owned by members rather than a corporation.  Because of this, fees tend to be lower or nonexistent, and interest rates tend to be much more favorable toward consumers.  Structurally, since all members are co-owners, credit unions are run democratically.  Although a board of directors runs the credit union, the members of the credit union vote the directors in.  Each member of the credit union has one vote regardless of how much money is in his or her account.

One other difference is that credit unions tend to be a lot more stable than corporate banks.  Some corporate banks finance higher-risk loans and make riskier investments in order to increase profits.  Since credit unions are a consolidation of members not seeking a profit, they tend to manage money and loans more prudently than their corporate counterparts.  The only disadvantage is for members with financial and credit difficulties, who will generally be unable to get a loan.  Credit union members who fail to repay loans in a timely banner or who bounce too many checks may be expelled from the credit union. 

Self-Sustaining

Credit unions are either chartered at the federal or state level.  The states oversee their own chartered credit unions and the National Credit Union Administration oversees all federally approved credit unions.  This holds credit unions accountable to a “higher power” in addition to their own members.  However, the Administration is not funded with government tax dollars.  Instead, it is funded by the credit unions themselves.  In addition, under the Administration the credit unions organized their own federal deposit insurance fund so that tax dollars would only be used as a last resort.