The credit union is the type of financial institution that typically has membership requirements, which constitutes its primary difference from a bank.
Along with the banks, credit unions are a type of financial institution that accepts deposits, offers loans, and provide a broad spectrum of other financial services. The major difference between a bank and a credit union is that the former, unlike the latter, only offers its services to the members of a specific group. There may be different membership requirements such as belonging in the military, higher education, or any other social or professional group, but there is always a distinction between this specific group and those who are not eligible to receive the union’s services.
Apart from the membership requirements, credit unions also differ from banks in their ownership and functioning. The unions are member-owned, meaning that everyone eligible to receive their financial services also has a say in electing the board of directors combined of volunteers. Such an approach results in greater transparency and accountability of the institution, making a union a safe place to borrow from or save. Another notable difference is that, unlike banks, credit unions are not-for-profit organizations. Since the owners and the clients of the credit union are the same people, this type of financial organization concentrates directly on improving the well-being of its members. As a consequence, the profits made by a credit union result in increasing saving rates, lowering loan rates, and reducing fees for the members. Thus, the simple fact of membership requirement highlights the differences between such types of financial institutions as credit unions and banks in ownership, functioning, and the ultimate motivation.