What is a Credit Union?
A credit union is a type of financial organization that is owned and governed by its members. Credit unions provide its members with a variety of financial services, including the opening of checking and savings accounts and granting loans. Credit unions are non-profit organizations that are intended to provide high-quality services to its members, not to maximize its profits. In addition, they are actively involved with the community.
Credit unions are structured in a cooperative model. Members purchase shares in a credit union. The money from the credit union members are pooled together and are used to provide financial services to the members.
Credit Unions vs. Banks
Although credit unions provide many services similar to the services provided by banks, the two financial organizations are significantly different from each other:
1. Ownership and Governance
Credit unions are owned and governed by its members. Any person who becomes a member of a credit union can actively participate in the affairs of the organization by direct voting. For example, all credit union members participate in the election of the board of directors.
On the other hand, banks are usually owned by a small group of shareholders. The shareholders participate in the bank’s governance by electing a board of directors, while regular customers cannot participate in the exercise.
The main goal of credit unions is to provide financial services to its members, while banks focus on maximizing its profits.
Due to their non-profit nature, credit unions can provide their members with services at lower costs. Generally, credit unions charge lower fees for the maintenance of accounts and provide a broader variety of loans at lower rates relative to those offered by banks.
However, the credit unions’ narrow profit margin does not allow them to keep the same operations exposure as the banks. Credit unions tend to operate fewer branches and ATMs than banks, and lack more advanced technologies for their online banking services.
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