Introduction
Credit unions are also a financial institution of cooperative form. In a credit union, all the financial services are exclusive to its members only i.e. the benefit of saving and lending and other functions are limited to its members only. In the truest form, one needs to be a member of unions to enjoy the services provided by unions. Some of the functions of such formation are:
| Accepting Deposits | Advancing Loans |
| Debit and Credit Cards | Online and Application Banking |
Unique Characteristics of Credit Unions
Membership Based
Credit Unions are owned by the members. This means, you need to take the membership of the unions to enjoy the services provided. All the members pool their resources to benefit the entire group in a financial institution setup.
Non-Profit Motive
Unions service their members and are a non-profit motive. They provide services at lower fees, better interest rate and other benefits. The benefits are for members hence there is more service factor than profit factor.
Focus on Community
Such Unions are not widely spread. They serve a specific geographic area or a community. They involve and participate defined group of people with a common bond. They associate individuals from the same locality and serve those individuals.
Personalized Service
Such financial institutions are run by its members and for the members. Hence, they provide some personalized service to its members by operating inside the regulatory norms. Such unions serve and meet the unique personalized need of each member.
What is a Bank ?
A bank can be defined as a financial institution which deals with deposits and advances. There are two major functions of a bank i.e. saving from surplus and lending to deficits at a cost rate of interest. Some of the important functions of banks are:
| Accepting Deposits | Advancing Loans |
| Merchant Banking | Payment Banking |
| Foreign Exchange | Card Services |
| Credit Creation | Remittance |
| Bancassurance | Agency Service |
Benefits of Credit Unions
- Lower service charges
- Lower lending rates
- Better saving rates
- Local Investment and powerful presence in community
- Personalized service and niche operation
- Low risk in operation
Differences between Banks and Credit Unions
| Banks | Credit Unions |
| A bank is owned by shareholders. | A credit union is owned by its participant members. |
| They have a profit motive with service orientation. | Credit unions are non-profit motive and services are exclusive to its members. |
| Banks have higher interest rates on loans and higher service fees. | They have lower service charges and low rates on loans. |
| Banks provide a wide range of products and services. | They have limited products and services to offer. |
| Banks have customers. | Credit Unions have members. |
| Banks share their profit with investors and shareholders. | Credit Unions share their profits with their members. |
| Anyone can enjoy the service provided. | Only members can enjoy the services offered by Credit Unions. |
| Banks are liable to taxation. | Such unions enjoy tax benefits. |
| Banks have a structured and complex credit eligibility requirement. | They generally have less restrictive credit eligibility requirement. |
| Banks are generally insured by Deposit Insurance Corporation | Such formation are insured by Credit Union Administration. |