Making the switch to a credit union, is a step that thousands of people around the world take annually. The credit union is seen as a healthy alternative to the traditional commercial bank because of its positive promotion as a community local bank that belongs to its members. However, before you decide to dump your bank account, you should consider why you want to switch to a credit union, the pros and cons of the credit union model and whether the products and services offered by the credit union meet your needs.
The Difference Between Credit Unions and Banks
A credit union is a member owned, cooperative, not-for-profit financial institution that provides financial services to its members. The World Council of Credit Unions notes that credit unions create a pool of their members’ savings to finance their products and services, instead of seeking outside capital. By comparison, a commercial bank (commonly known as a bank), is a shareholder owned, for-profit institution that provides financial services to its customers. In addition to creating a pool of customers’ money to finance their products and services, the bank often seeks outside capital.
Ownership Structure
One of the major differences between the credit union and the bank is evident in the ownership structure. People who save their money in the credit union are referred to as members. These members are effective owners of the credit union and have the right to vote for board members and run for election to the board. Banks are owned and controlled by their shareholders, whose level of control (i.e. the number of votes) depends on the amount of shares they hold. Customers do not have any voting rights, can not be elected to the board and generally have no input into the operations of the bank or who the directors should be.
Business Focus
The strategy employed by credit unions is tailored to maximise the interests of its members. So, many credit unions focus on consumer loans, member savings products and services. Their non-profit status also alludes to the fact that profits generated are shared with customers via lower interest rates and little or no fees. Commercial banks are more focused on generating income for their shareholders, and so they pursue commercial loans, accounts and services and short term and long term investments. Because banks are for-profit, they face additional pressure to make money, and thus impose fees on their customers.
Comparison Between Credit Unions and Commercial Banks
If you are still unclear about making the switch to a credit union, the below table gives a summary of the differences similarities between credit unions and banks.
| CHARACTERISTIC | CREDIT UNIONS | BANKS |
|---|---|---|
| Structure | Not-for-proft | For-profit |
| Clientele | Depositors, who are members and part-owners. | Clients |
| Management | Board of directors elected by the customers | Board of the directors elected by the shareholders |
| Product/ Service Focus | Consumer loans and member savings | Commercial loans and accounts and services |
| Earnings | Distributed to members as dividends, low interest loans, high interest savings accounts | Distributed to shareholders |
Credit Union Financial Products and Services
Credit unions offer some of the same products and services as commercial banks. But in some cases, they offer additional bonuses for their members. The Grenada Public Service Co-op Credit Union is an excellent example of a credit union that has a variety of financial products and bonuses for its members. The credit union was established in 1947 with twenty-one members and share capital of less than one thousand dollars.
Over the years since its establishment, the credit union met several important milestones due to the support of the Grenadian government and Grenadians. This cooperation has aided in the credit union’s development as a premier financial institution. The 2014 annual report states that the membership has grown to over ten thousand; assets grew by over thirty-two million dollars; over one million dollars was provided in micro and small business loans and there was an increase in deposits of over thirty-five million dollars.
Products and Services
For members’ savings and investment needs the Grenada Public Service Co-Op Credit Union provides regular shares , special savings accounts, education savings, fixed deposits, retirement savings plans and equity shares. Their loans suite is also varied and provide specific borrowing products and services to match the most popular needs. They offer loans for land purchases, medical emergencies, vehicle purchases, home construction and home purchases, education expenses and tuition, vacations and solar water heater purchases.
The credit union also provides special bonus programmes for children and youth, a Visa debit card that can be used anywhere in the world; a discount card which allows cardholders to benefit from discounts at specific merchants; convenient telephone and internet account services; a micro finance loan system that provides funding for small business owners and entrepreneurs; and free online training courses for all of its members.
The Grenada Public Service Co-Op Credit Union has several advantages for its members who are seen as the backbone of the movement. Excellent member service is seen as a basic minimum and this is provided in numerous ways. The credit union has three locations, where members and prospective members can meet with staff to access their financial information and receive information and advice on products and services. There is also easy access to financing, and loans can be approved in one day, as long as all loan requirements are met. Additionally, dividends, which represent the surplus funds from investments, are distributed to all members annually. As long as you are a member of the Grenada Public Service Co-Op Credit Union, you will benefit from these bonuses.
Should I Switch to a Credit Union?
Before you make your final decision about making the switch to a credit union, first assess your needs for the account and be clear on what will you be using the account for. Commercial banks offer various types of accounts which might meet your requirements. Credit unions might not have the wide array of bank accounts, but there might be a solution that works for you. Make a checklist of the things that are important to you and assess the bank or credit union based on the factors. If you’re still unsure, take a look at our handy infographic which identifies the things to consider when choosing a bank account and makes an excellent checklist.
If you forget everything else, always remember to use this checklist when choosing a bank account.
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References: The Difference Between Credit Unions and Banks; What is a Credit Union; Credit Union vs. Bank: What’s the Difference?; Credit Union Vs. Bank