Banks and Credit Unions


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 DepositsAdvancing Loans
Debit and Credit CardsOnline 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 DepositsAdvancing Loans
Merchant BankingPayment Banking
Foreign ExchangeCard Services
Credit CreationRemittance
BancassuranceAgency 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

BanksCredit 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 CorporationSuch formation are insured by Credit Union Administration.


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