25 January 2007

An Intro to Credit Unions

I get this question all the time..."what's the difference between a credit union and a bank?" Often, the question is one of sheer curiousity - much like "what's the difference between a crocodile and an alligator?" The answer to this question, however, should significantly change the way you approach everyday personal finance.

Banks, even the truly good ones, are in business to make money for their stockholders. These stockholders are often upper management of the bank and wealthy investors from all over the world. These banks are under pressure from these investors to grow their business (make more money) so the value of each share of stock increases, and, likewise, they see a return on their investment. They, then, are in business for their stockholders - wealthy investors and executive management.

Credit Unions are in business to make money for their shareholders as well. There is a SIGNIFCANT difference, however, in who these shareholders are. In credit unions, shareholders are members. Members of credit unions OWN their credit union.

Look how this sets up. Both types of financial institutions feel pressure to serve their clients (customers to banks, members to credit unions). After all, without at least some degree of client satisfaction, neither could survive. Banks, though, have to strike a balance between serving their customers and profiting from them. To the contrary, credit unions don't need to strike a balance - their members ARE their owners. Success for banks means more money in the pockets of their wealthy stockholders and management. Success for credit unions means better rates on deposits and loans for their members.

This difference may seem minor from afar, but it amounts to quite a big deal for normal, everyday people like you and I. According to a recent study, North Carolina credit union members (in 2003 alone) saved more than $336 million by doing business with their local credit union rather than a bank ("Benefits of Credit Unions to North Carolina Consumers of Financial Services," April 2005). Fewer and lower fees, as well as higher deposit returns and more favorable loan rates were major reasons why.

As owners, credit union members also elect their Board of Directors - UNPAID directors. These Boards oversee the operations of credit unions and guide their CEO's with their visions to better serve members. Bank board members are elected by wealthy shareholders, whose only interest is to continue increasing profits (which come at customers' expense) for their own benefit.

There are many other aspects of "The Credit Union Difference," including community involvement, friendly service, and other subjective (yet widely supported) concepts. But if you can understand the motivations of each type of financial institution that I have highlighted above, you can easily understand why more and more Americans are turning to credit unions as their primary financial institution.

Whether you join my credit union in North Carolina, or find one closer to your home. Consider credit unions - your financial health will thank you for it.

1 comment:

Trey Reeme said...

Matt, Good to stumble on your blog - I'm looking forward to participating in the conversation - hope you don't mind me adding your link to Open Source CU.