The Credit Union Difference

 

"Credit unions have long focused on the needs of their members."

- Former Federal Reserve Chairman Alan Greenspan

 

The credit union difference is evident every day in the service credit unions provide to their

members, in the focus and direction as set by the board of directors, and in the credit unions’ commitment to community service. Here is a look at the many other differences between not-for profit financial institutions and the typical banking organization:

 

Key Differences Between Credit Unions and Banks

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Structure

• Credit unions are member-owned, non-profit financial cooperatives that offer a range of

financial services to their members. Credit unions raise capitol through member deposits.

 

• Banks are for-profit, board and stockholder controlled, financial corporations that offer a

wide variety of financial, investment, insurance, and real estate services to their customers.

Banks have the ability to raise capital selling stock.

 

• Credit unions are economic democracies. Each credit union member has equal ownership

and one vote, regardless of how much money a member has on deposit.

 

• Bank stockholders hold influence in relation to the number of stocks they hold, with large

stockholders entitled to a greater number of votes.

 

• Credit unions are governed by a board of directors, elected by and from the credit union’s

membership, who serve voluntarily without pay.

 

• Bank boards are generally compensated for their services.

 

• The earnings of a credit union, minus operating expenses, are returned to the members in

the form of higher interest rates on deposits and lower loan rates.

 

• The earnings of a bank, minus operating expenses, are divided among the stockholders of

the bank.

 

 

Taxes

 

• Credit unions do not pay corporate income tax on the earnings of the credit union, but do  pay all other relevant taxes, such as payroll and property taxes.

 

• Banks do pay corporate income taxes on earnings, although there are many banks that do

not pay taxes at the corporate level under Subchapter S of the IRS Code. Currently 1,800

banks in the U.S., or 19 percent of all banks now have Subchapter S status for avoiding taxes on corporate earnings.

 

• Congress granted credit unions a tax exemption based on their unique structure as non-profit cooperatives and to provide financial services to those of

modest means.

 

• Banks do not have a tax exemption because they are a for-profit business, intended to

provide profits to their stockholders.

 

 

Market Share

 

• Credit unions hold approximately 5.3 percent of the total financial assets in the U.S.

 

• Banks hold $6.9 trillion, S&Ls: $1.3 trillion, Trusts: $885 million.

 

 

Growth

 

• The average size of a credit union in the U.S. is $60 million.

 

• The average size of a bank in the U.S. is $902 million.

 

 

Membership

 

• Generally, credit unions may only offer membership to individuals who are members of a

select employee group (SEG) or community that share a common bond. A credit union can

include, subject to regulatory review, any number of these groups.

 

• Banks face no restrictions on who they serve.

 

 

Affordability

 

• Credit union services may be available to members for a deposit of as little as $25.

 

• Banks usually require a minimum deposit of $50 to $100 to open an account.

 

 

Services

 

• Credit unions are limited in member business lending to 12.25 percent of the credit union’s assets or 1.75 times the credit union’s net worth.

 

• Banks are not limited in the aggregate amount they may lend to businesses.

 

• Under current law, credit unions may not directly offer trust services.

 

• Banks may offer trust and other fiduciary accounts.

 

• Credit unions may not offer broker securities.

 

• Banks, directly and without registering with the SEC, may engage in many types of securities brokerage activities.