What Are the Differences Between a Bank and a Credit Union?

The primary difference between banks and credit unions is their organizational structure. Banks are for-profit institutions, whereas credit unions are nonprofit organizations. This difference, among several others, are key when comparing banking organizations—and deciding which is best for you. Many people may not know that credit unions are a viable option for virtually every banking service, from commercial lending and deposits for business to opening a simple savings account.

Keep reading to learn more about the differences (and similarities) between banks and credit unions, and why organizations like Indiana Members Credit Union are great options for personal banking as well as small business banking.

What Are 3 Differences Between a Bank and a Credit Union?

There are at least 3 key differences between banks and credit unions:

1. Profit Status | Organizational reasons for existing and/or primary goals

• • Banks are privately-owned, for-profit institutions that are set up like a business.
  • Credit unions are member-owned, nonprofit organizations that are set up as a collective.

2. Savings Rates | How much members get in interest via savings and certificates of deposit (CDs)

• • Traditional Banks usually have lower-than-average rates (i.e., members make less on their savings).
  • Credit unions usually have higher-than-average rates (i.e., members make more on their savings).

3. Customer Service | The ability to offer high-touch, quality member experiences

• • Banks These institutions focus on profitability, convenience, and may not be able to offer personal service.
  • Credit unions Although most larger credit unions offer the same technology and functionality of larger banks, the emphasis on member satisfaction, success, and providing the best experience is a key differentiator for credit unions.

Most of the differences between banks and credit unions stem from their organizational structure. Banks are for-profit institutions and credit unions are nonprofits, which drives a lot of their motivations and services. Interest rates on business loans, for example, will typically be higher at a bank because it needs to create a profit margin. Credit unions, on the other hand, use their “profits” to provide better rates and services for their customers, meaning they can offer lower interest rates on loans. With this, it’s worth noting that credit unions tend to focus on more specific regions and/or interests, which further drives their dedication; Indiana Members Credit Union, for example, focuses on serving Indiana.

The best credit unions offer better rates, higher savings, and far better service than a commercial bank. They also tend to have lenient requirements for membership. On top of that, the organizational structure of credit unions (a nonprofit collective) means that they are literally owned by the members, meaning they are dedicated to member success at their core.

How Do Credit Unions Make Money?

Similar to banks, credit unions make money via fees, interest collected on loans, and services they provide—such as treasury management. The difference between banks and credit unions, then, is that credit unions use the money they make to improve the credit union’s services, rather than collecting a profit. This is because credit unions are nonprofit collective owned and controlled by the members they serve. As explained by Forbes, “any income the credit union generates through interest, fees and loans is then used to fund community projects, reinvest into the organization or provide services that directly benefit members, like paying higher savings interest rates.”

Are Credit Unions FDIC-Insured?

Credit unions are insured by a similar federal organization known as the National Credit Union Administration (NCUA). As stated on the NCUA’s website, the organization is “responsible for regulating federal credit unions, insuring deposits, and protecting members of credit unions.” Like the FDIC insures the money and investments of both banks and their patrons, the NCUA provides protection for both credit unions and their stakeholders—that is, the members they serve.

If you’re wondering “Is my money safe in a credit union in 2024?” the answer is a resounding yes. Credit unions are regulated in ways that are very similar to their commercial counterparts. The NCUA offers the same protection to credit unions and their members that the FDIC offers to banks and their members.

Is There a Downside to a Credit Union?

Perhaps the single “downside” to a credit union is that many people do not know they are an option. This is understandable, as most are generally focused in a particular geographic region or on a particular population, and so they are not as advertised as their large-scale commercial counterparts. But depending on where you live or where your business operates, chances are there’s a credit union who’s ready to serve you. Indiana Members Credit Union, for example, is focused on serving individuals and organizations in Indiana.

While the smaller size of credit unions may be seen as a downside, it’s actually a major advantage when banking—especially for small businesses. Since credit unions focus on specific regions, they can provide a much higher level of quality customer service. And because they’re nonprofits, credit unions pour their “profits” right back into better serving the members. Business owners get the financial services they need with the quality of service as if they were doing personal banking.

Many people and organizations could benefit from working with credit unions. For a small business, especially one with nuanced needs, a commercial bank may not be able to provide the high-touch service that business wants. Even if the bank can provide that service, it could come at a more expensive cost. Credit unions are interested in their members’ success above all else—and that goes for the businesses they serve, too.

If you’re a business in need of a commercial loan, treasury management services, or even just a place to make deposits, consider a credit union like IMCU. We offer a wide array of services to small and midsize businesses, and we’re genuinely interested in helping you. Visit our website today to learn more!