Welcome to the very first blog ever written on behalf of KSW FCU! You know us… Everything we do, we do for you… yeah, that is us. You totally just sang our jingle in your head, didn’t you? That happens to us here as well. Anyhow, today I would like to tell you the major differences between a bank (boooo) and a credit union (yaaaayyy).
Here we are, it is 2017 almost 2018 and so many people do not know the difference between a credit union and a bank. Though both have similarities in their services there are way more differences between the two. If you have ever talked to a financial analyst they typically talk about investing your money in various products and will guide you to a bank for such. Well, what if I told you that you are helping to make the rich stay rich and actually getting less ROI (return on interest) at a big bank?
The natural stigma is that money follows money. And that can be true in regards to business owners in the private sector. However, in the financial world it is far from reality. At first glance a bank looks impressive and powerful like a group of people who know how to make money, right? That is because they do. They make money from your money not their own. You just pumped the brakes a little didn’t you? As you should because most investors do not understand how financial institutions make money.
Let’s take a look at the inner workings of a bank, shall we? This is a very simple process. A bank starts out with investors who agree to let them use their money to provide loans to consumers or customers. The consumers then pay the money back with interest. The interest that is paid to the bank then goes back to the investors as repayment. Once the initial investment is paid back all of the interest becomes profit.
Now if you want your bank to grow you bring on investors or “shareholders”. These people again invest in the bank and get a return on their investment through dividend growth. You as a customer are paying these shareholders a paycheck with every deposit. Do you get a return on your deposit? You certainly do. A very minimal return while the remainder of the interest gained goes to the shareholders. Maybe you have asked yourself why a bank would want me to keep a minimum balance in my account of $250 or higher. That is because they want to guarantee that you are making them money. Now you have your money paying the salaries of board members, shareholders, investment groups, and anyone else tied to the institution. When they open a new location, you paid for that.
Friendly Credit Unions
Now let’s take a look at credit unions to see how they stack up against a bank. Much like a bank a credit union (CU) starts out with an investor. The investors are now the owners of the credit union. Their investment, just like a bank, goes to provide loans to members. The members will then pay the loans back with interest, again just like a bank. Here is where we begin to differentiate from a bank. The money gained from the interest goes back to the members in the form of lower interest rates on loans, providing more services, and growing the member base through share accounts. Have you noticed that I am using the word member? I will get into that in just a little bit.
Here we are making money, right? WRONG, CU’s are not-for-profit. CU’s have a volunteer board of directors. These positions are elected positions by members. There is that word again. The Supervisory Committee (the checks and balances of your money) is also an appointed position by the board of directors. These positions are held by people who are here to protect your investments as a member. I keep using that word so why don’t we get to it.
Member vs. Customer
At a bank, you are a customer. You purchase services from investors. Your only benefit is that the service is available to you while the shareholders make money. At a CU you are a member. When you make the initial deposit into your share account (savings account in banking terms) you are purchasing a share of the CU itself. This makes you an owner of the institution. Pretty sweet deal, I know. By being an owner, it makes your life so much easier whether it is lending, access to money, balance requirements, and so much more. You even get the opportunity to vote on the people that sit on the board of directors. You are in charge of your money at this point.
I mentioned lending being easier at a credit union. It is and it isn’t. As a consumer, you still need to be responsible for your money and how much you spend. Let’s say you apply for a loan at a bank. The inner working of that process are as follows. You apply and they say yes or no. Seems legit considering that is the status quo of lending. Now at a credit union it works more like this. You apply for a loan, a loan officer reviews the loan, if they have questions they call you, and then a decision is reached based on full consideration of the application. CU’s want to give you that loan, after all you are a member.
We are Community
Credit unions are also about helping their communities directly. With fundraisers to benefit local charities and financial returns to its members a credit union help pave the way for economic growth and stability.
In our next blog we will discuss some great ways to save money even on a minimal budget.
Check out the differences in the image. Please take a look and decide for yourself which type of institution is best for your financial future as an individual and as a community. And remember, Everything we do, we do for you!