Credit Unions vs. Banks: 4 Differences to Help You Decide

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If you plan on borrowing some money or opening an account, there are several different options available to you. Banks and credit unions are two of the more popular institutions to which you can go. But how can you choose between them? Part of making that choice is understanding the differences between the two. Here are some of the primary ways that they differ of which you should be aware.

The Profit Structure

The most significant difference between credit unions and banks is that credit unions are financial institutions that are not-for-profit. Banks, on the other hand, are very much a for-profit business setup. Because of this, credit unions are exempt from federal and state income taxes. They are still responsible for property taxes, payroll, and sales taxes. Banks must pay federal and state income taxes. Because of these differences in their tax and profit structures, each of these financial institutions uses its surplus earnings in different ways.

What They Do with Surplus Earnings

Banks use their surplus earnings to provide their shareholders with substantial financial returns. These shareholders are their investors, and banks must do all that they can to keep them satisfied, so they do not withdraw their financial support. Banks are often publicly traded companies. Credit unions, by contrast, use their surplus earnings to increase returns and service offerings. At the same time, they attempt to decrease interest rates and fees. Because of this, credit union checking accounts like those from Altana and others provide significantly more value than a regional bank, and much higher value than any national bank.

Different Eligibility Requirements

Because of this, it seems as though everyone would want to borrow money or do their financial transactions with a credit union rather than a bank. However, there are certain conditions for a person to use a credit union. Credit unions serve only a specific population, and they have requirements for those who are interested in joining. Anyone who has money can walk into a bank at any time and open an account. In most cases, to join a credit union, you must attend school, work, worship, or live in a particular county or city.

Guiding Philosophy

The other difference between banks and credit unions that is worth mentioning is their guiding philosophy. Because banks are for-profit institutions, making money is their principal goal. They are naturally competitive, and it could not reasonably be said that their first concern is for the people who are banking with them. Credit unions are set up to be cooperative financial institutions. They want to help the people that use them, and the wellbeing of their customers is paramount.

As you are trying to decide whether a bank or a credit union is right for you, think about the transactions that you plan on making there regularly, and what your end goals are for your finances. It is not possible to say that either a bank or a credit union is the superior choice in all circumstances. It depends on many different factors, and you should take care to select the one that will most benefit you.

 



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