| $ | |
| % | |
By FinanceBuddy Staff Writer
Banks grant loans, hold deposits, offer retirement plans, have stock investing programs, etc. Banks are for-profit institutions. They make their money by charging interest and fees on loans. That money is then invested, creating even more money. A bank's primary obligation is to its stockholders, as opposed to its customers. Staff members are paid employees. The board of directors is voted on by stock holders. Banks are regulated by the Federal Reserve Bank. In contrast, credit unions provide many of the same services as a bank, although with less variety, but they are non-profit. Their funding comes from members who join by purchasing shares of the union. Therefore, all members are also owners. The money that members put in the credit union is then used to provide low interest rate loans and high interest savings accounts to other members. This is comparable to borrowing money from a neighbor. The low interest rates are also due to the tax exempt status of credit unions as not-for-profit organizations. Daily staff members are paid, but the board of directors is filled with volunteers who are elected by other members. Credit unions are regulated by the National Credit Union Association (NCUA). If convenience is important, then banks have an advantage. They typically have many locations where customers can have access to their accounts and ATMs. While banks allow anyone to join, credit union members are restricted to certain common criteria, for example, employees who work at the same company or people who attend the same church. Banks have an obligation to promote certain products; therefore credit unions can generally offer more personalized service that best fits one's needs. In terms of cost, credit union members pay considerably less in fees and interest than bank customers.