Differences between commercial banks and credit unions

A commercial bank is a for-profit business, owned by members of a corporation, while a credit union is a not-for-profit cooperative, owned by everyone who has an account there. (Could a bank be owned by one person and not by a corporation?)

A commercial bank typically has stockholders. Some of the bank’s profits are shared with these stockholders, to retain and attract more stockholders. By contrast, a credit union has “no stockholders and earnings are returned to the membership in the form of lower loan rates, better savings rates and invested back into the credit union to expand services members need and want.”

A bank can be bought by a larger bank without the input from customers. A credit union, which is a cooperative, can't be easily bought, I dont think.

Anyone with at least a little money can open an account in a commercial bank. By contrast, credit unions are restricted by law to people belonging to a defined group --such as a geographical region, occupation, company, or association.

A commercial bank’s Board of Directors are selected by Y and do X…[check]
A credit union’s Board of Directors are elected by members (those with accounts) for three year terms, and they do a lot: they set interest rates, review losses, make personnel policy, make sure the credit union is following the laws, and set investment policy. A bank’s Board of Directors get compensation for their work (as much as what?) while the a credit union’s Board works voluntarily.

Commercial banks pay taxes on their earnings. Credit unions do not pay taxes on their earnings. (To be precise, federal credit unions pay no income tax; state credit unions still have to pay state income tax. Why would a credit union opt to get a state rather than a federal charter, given this added cost for state credit unions?) Are credit unions exempt fromincome tax because they are non-profits? Apparently, the American Bankers Association has made it a priority to change this law, so that credit unions would have to pay taxes.

A commercial bank is insured by the Federal Deposit Insurance Corporation (FDIC.) That means that the government guarantees any money you put in a commercial bank, up to $100,000 per person. If the bank closes for whatever reason, the government promises to give you the full amount of your deposit. (Does this insurance money come from tax dollars?) A credit union is insured by a comparable institution called the National Credit Union Share Insurance Fund (NCUSIF.) So, if a credit union closes, the government still promises to give you the full amount of your deposits, up to $100,000.

Interestingly, there are a similar number of banks as credit unions in the U.S. but more money is actually deposited in banks. According to one source, in 2004 "the National Credit Union Administration insured more than $500 billion in deposits at 9,000…credit unions. The [FDIC] insured more than $3,000 billion in deposits at 8,900 banks and thrift institutions.”

Two other interesting bits of information, one about credit unions, one about banks:

First, credit unions formed in the 1900s in the US as the “poor persons’ banks” after banks consistently refused to offer loans to poor people.

Second, it turns out commercial banking is a very profitable business:

“Large banks in the United States are some of the most profitable corporations, especially relative to the small market shares they have…For example, the largest bank, Citigroup, which for the past 3 years has made more profit than any other company in the world, has only a 5 percent market share. Now if Citigroup were to be as dominant in its industry as a Home Depot, Starbucks, or Wal Mart in their respective industries, with a 30 percent market share , it would make more money than the top ten non-banking U.S. industries combined.”