A Credit Union is a cooperative, not-for-profit financial institution organized to promote thrift and provide credit to members. It is member-owned and controlled through a board of directors elected by membership. The board serves on a volunteer basis and may hire a management team to run the Credit Union. The board also establishes and revises policy, sets dividend and loan rates, and directs certain operations. The result: members are provided with a safe, convenient place to save and borrow at reasonable rates at an institution which exists to benefit them, not to make a profit.

Credit Unions and Banks — There is a Difference

Structure

Credit unions are member-owned, not-for-profit financial cooperatives that offer services to members.

Banks are for-profit, board and stockholder controlled, financial corporations that offer a wide variety of financial, investment, insurance and real estate services to their customers

Credit unions operate under a one member, one vote system.

Bank stockholders hold influence based on the total value of their stocks.  Bank customers do not own a financial interest in the bank.

Volunteer, unpaid boards operate most credit unions.

Bank boards generally are compensated for their service.

The earnings of a credit union, minus operating expenses and required reserves, are returned to members in the form of higher interest rates and lower loan rates.

The profits of a bank, minus operating expenses, are divided among the stockholders of the bank.

Taxes

Credit unions do not pay federal income tax on the earnings of the credit union but do pay all other relevant taxes such as payroll, property, and sales tax.

Banks do pay federal income taxes on corporate profits, although many banks qualify for tax-exempt status under Subchapter S of the IRS (Internal Revenue Service) Code.

Congress granted credit unions a federal tax exemption based on their unique structure as not-for-profit cooperatives and to provide financial services to those of modest means.

Banks do not have a tax exemption because they are for-profit businesses intended to provide profits to their stockholders.  Their customers own no financial interest in the bank.  (Banks have paid more dividends to stockholders than they paid in income taxes each of the past eight years.  If banks didn’t have stockholders who demand a market rate of return, they could be more competitive.)

Market Share

At year-end 2003, credit union share of total financial institution assets was 6.5%-- 10 years earlier (year-end 1994) the credit union share was 5.6%.

Banking institutions share at year-end 2003 was 93.5%.  It was 94.4% at year-end 1994. 

At year-end 2003 credit unions share was approximately $1 out of $15.

Banking institutions control more than $9 of $10.

Average size at year-end 2003 for credit unions is $65 million.

Average size banks at year-end 2003 was $982 million

Membership

Under federal and state laws, most credit unions (90%) may offer membership only to individuals who are members of a select group that share common field of membership.  (Employees at a given company are a good example.  A credit union can include subject to regulatory review, any number of these groups.)

Banks face no restrictions on whom they serve.

Affordability

Credit union services may be available to members for a deposit of as little as $5 to $50.

Banks usually require a minimum deposit of $50 to $100 to open an account.

Growth

Between 1999 and 2003, credit unions grew $206 billion.

Banking institutions assets grew by $2.193 trillion during the same period.

In 2003 alone banking institutions grew by more than credit unions have grown since they began operating in the U.S. nearly 100 years ago.

Related Pages:
About OFCU
Board of Directors
FAQ
Our Mission
Our History
Membership

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225 River Road
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