Understanding the difference between a credit union and commercial bank, and why I prefer credit unions
I have spent most of my career working in the financial services industry. I worked for commercial banks for several years before transitioning to credit unions. Given my experience in both worlds, I hope to provide a succinct and informative perspective on the differences between the two.
The largest difference is really a philosophical one. Credit unions are based on a relatively simple concept: people helping people. Individuals with common interests/ location/ or job band together to help each other gain access to capital and extraordinary financial services. Credit unions are member-owned, non-profit institutions. There are no shareholders to which the institutions are beholden. The priority of the credit union is to offer the best variety of financial products that meet the needs of its members.
In real terms this means that profitability is not the number one motivating factor for credit unions. Therefore, credit unions have the unique ability to typically offer lower rates on loans and higher rates on deposits for their members. Maybe credit unions are on to something?
From a commercial lending/business services standpoint, credit unions have specific competitive advantages compared to commercial banks. In addition to the previously stated reasons, credit unions do not impose prepayment penalties on any loans, including commercial real estate. This gives members the flexibility they desire to manage their portfolios. Also, credit unions typically can utilize longer amortizations than commercial banks. Some amortizations run as long as thirty years on commercial properties.
Another area that sets credit unions apart in a positive way is the extensive partner network. Ironically, I have heard people say that credit unions don't have the branch network to meet one’s business or personal needs. In the spirit of cooperation, many credit unions participate in a shared branching network. This allows access to over 5,000 credit union locations and nearly 30,000 free ATM machines throughout the nation.
There’s a good chance that anywhere you go, your banking needs can be met by a partner credit union. Frequent travelers love the advantage that credit unions provide by eliminating the high fees many banks charge at ATMs outside their network. Credit unions partner with each other to provide you the services you need and their concern is not about making a profit; rather, it’s about people helping people.
If you have yet to check out your local credit union, I’d encourage you to do so. I think you’ll like what you find. I know I did.
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Commercial Services Director