What’s the difference between a Credit Union and a Bank?
Credit unions still remain a mystery to many Kiwi consumers, but it’s clear that this is changing. Since the financial crisis there has been a strong trend of people seeking alternatives, and more and more people in New Zealand are choosing credit unions.
In general the same services are offered by both banks and credit unions. These might include personal loans, debt consolidation, car loans, home loans, accepting deposits, and the provision of various other financial services. There are however key structural differences between these two types of financial institutions, which they affect how they make money. The biggest difference is that a bank functions in order to generate profits for its shareholders. Whereas a credit union operates as a not for profit organization, and is designed to serve its members who are also its owners. Banks customers have no ownership of their bank.
The key differences between a credit union and a bank:
Banks are essentially corporations whose focus is profit. They are required to declare earnings paid only to stockholders. The shareholders of a bank expect earnings to grow on a quarterly basis, which can increase the need for bloated margins.
Credit unions are financial cooperatives who are not-for profit. Their earnings are paid back to member in the form of lower loan rates and higher savings rates.
Both banks and credit unions make their money be attracting deposits. Personal loans from a credit union are generally cheaper and customer service is proven to be more personalized.
Credit Union Members and Bank Customers
The depositors of money into a bank are referred to as customers. A bank’s customers have no ownership interest in the bank. A bank is owned by its investors, who may or may not be a customer.
At a credit union, each depositor is called a member, and each member is an owner of the credit union. This doesn’t mean a corner office and a miniature putting green of course, but it does mean you have a sense of ownership in a democratically owned credit union, where you’re buying a membership when you make a deposit. Credit unions exist to serve the needs of the members, who are in fact the people who have deposited their money into the credit union.
Products and Services
The primary focus of a bank tends to be on commercial loans, and other services and accounts that generate significant income.
The same products and services offered by banks can generally be found at a credit union. This includes checking and savings accounts, mortgages, loans, bill payments and internet banking. The focus of a credit union tends to be on member savings and consumer loans, and any other services required by the membership.
Owners & Board Members
Shareholders own and control the banks, and the number of shares owned determines the number of votes to each shareholder.
There are no voting rights for customers, and customers cannot be elected to the board, nor have a say in how their bank is operated. Directors are selected by large block stock acquisition, or are appointed by existing directors.
When you belong to credit union you can vote for electing board members. Members can also run for election to the board.
Because of their tendency to be local and smaller, credit unions are often able to offer a more personalized customer service.
Due to their size, banks generally have more branches and ATMs available. Technology capabilities have enabled consumers to bank online without having to rely on a large network of branches. Credit Unions have adopted and their members can conduct their banking online or through contact centres without having to rely on a large network of branches.
Credit Union or Bank?
Your choice of a bank or a credit union is dependent on what you value and what your needs are.
Credit unions certainly offer financial perks and advantages, with better interest on savings and fewer fees along with better customer service, but tend not to have as many branches or ATMS. Ultimately, it comes down to how you like to do business.
If you would like more information on our credit union, or would like to become a member or take out a personal loan, visit our website or call our friendly staff at our contact centre on 0800 86 56 36 – we look forward to helping you.