Many consumers don’t understand the clear and unique advantages that credit unions offer over banks. For a quick overview and great comparison chart that clearly lines out the differences between a credit union and bank, click here.
Credit unions are financial institutions that focus strictly on the needs of their members, with no outside groups receiving compensation from profits, which come in the form of dividends or some other financial reward.
While many people consider credit unions and banks to be the same thing, there are distinct differences between what each entity offers its members. These unique qualities usually fall under the areas of Structure, Membership, Rates and Fees, and Taxes.
Set up as non-profit institutions, such that each member within it has a piece of ownership, no matter how small their financial stake. Each member is kept apprised of what the institution is doing and receives the chance to vote on any proposals that are offered by a board that’s been elected to shape policy.
TruService Community Federal Credit Union, like the vast majority of credit unions, has board members who volunteer their time and are therefore unpaid.
One of the major benefits of a credit union is the fact that any money that it makes is redistributed within the institution. This is accomplished by rewarding members through higher dividends as well as lower interest rates when they’re seeking a loan. Excess earnings are determined when all operating expenses for the credit union have been accounted for.
As a financial corporation that seeks to make as much profit as possible, a bank is run by a selected board that bases its decisions more on what will reward its stockholders rather than how it will benefit its customers.
Unless a customer holds stock in the financial institution, they have no vote when it comes to proposals offered by the board.
Instead, the needs of stockholders will help shape the overall philosophy of this entity, with any profits distributed to them and not customers.
Credit union membership is unique in that it can only be offered through either a geography-based community charter or if a person belongs to a specific group. TruService Community Federal Credit Union holds a community charter and focuses only on those living, working, or attending church or school in Pulaski and Faulkner counties in Arkansas.
Anyone with the financial wherewithal to deposit money or otherwise potentially benefit the bank’s bottom line is eligible to open an account.
One can join a credit union like TruService for as little as $5. Fees for overdrafts and NSF are typically lower.
Members typically receive lower rates for loans. This results from the earnings of the credit union being reinvested into the institution.
Opening up an account will usually require a deposit of $50-$100.
Since any profits will go to stockholders, customers receive lower interest rates on their money and must pay higher rates on a loan.
While a credit union must pay taxes related to sales, payroll and property, they aren’t subject to federal income tax on their earnings due to their non-profit status.
Any corporate profits are subject to federal income tax, though the IRS code does allow a number of banks to be classified as tax exempt under its Subchapter S provision.