Good Question: How Are Banks, Credit Unions Different?

MINNEAPOLIS (WCCO) — Anger over bank profits and fees have some lining up behind a movement to transfer their accounts to credit unions. So, what is the difference between a bank and a credit union?

“Credit unions are financial cooperatives. They’re owned by the members that belong to them,” said Mark Cummins, CEO of the Minnesota Credit Union Network.

According to Cummins, there are 144 credit unions in Minnesota and 1.5 million Minnesotan credit union members. Still, credit unions only have about “6-7-8 percent market share,” he said.

Credit unions are not-for-profit. The members are owners, like the shareholders are the owners of publicly traded banks.

Credit union boards are made up of volunteer boards of directors, while bank boards are made up of paid board of directors.

But don’t take that to mean credit unions are all small, mom-and-pop-type operations.

Wings Financial Credit Union is the largest in Minnesota, with total assets near $3 billion. That’s about the same size as the second-largest Minnesota-based bank, Bremer Bank. TCF Bank is the biggest Minnesota bank, with assets near $16 billion.

“Every credit union is limited by who they can serve,” said Cummins.

However, you can join Wings if you live in the 13-county Twin Cities area — or Seattle.

Still, banks have several other advantages.

“I think (banks) have a wider range of products and services, and you have better access to your funds,” said Joseph Witt, President/CEO of the Minnesota Bankers Association.

He admitted the credit unions can offer lower rates on loans, but said that’s because banks have more regulations and higher overhead.

Because credit unions are non-profits, they don’t pay corporate income taxes. That costs the US government at least $4 billion a year, according to a report by Congressional researchers.

“In some cases, credit unions are able to take those advantages and turn it into lower rates. Not always, but often times they can,’ said Witt.

“The bankers are the only ones that say there’s an uneven playing field in that regard,” countered Cummins.

When it comes to your bank deposits, they’re insured by the FDIC. Credit Union deposits are insured by National Credit Union Administration

“Your deposits either place are in fact safe, backed by the full faith of the U.S. government,” said Cummins.

The Credit Union Association said their lower fees and lower rates save the average member about $76 a year.

Still, banks do most of the lending and especially to businesses, because by law, credit unions can only loan a little more than 12 percent of their total assets.

More from Jason DeRusha
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  • Ron Paul 2012, End the Fed

    Credit Unions may be organized a little different and not as evil as the Big Banks, but they still use Federal Reserve Notes (The Federal Reserve as ”Federal” as Federal Express). It is time to protest the ”Fed”. The credit union is a temporary solution.

  • mohair

    banks have that ‘higher overhead’ because the prez and the board have to make their 3 million even if the bank is failing….

    and I really can’t think of any basic services my credit union doesn’t offer that a bank does, can you?

  • Ian Sean

    I always wondered what our Credit Union meant when they said they “have 5 million dollars to loan”. Banks don’t need anything as quaint as to “have” something before they loan it.

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