The credit unions are the co-operative financial institutions that are owned by the members of the union. The major difference between the credit unions and banks is that the credit unions are owned by the members unlike banks.
The policies of credit unions are governed by a volunteer Board of Directors that is elected by and from the membership itself. This board of directors also decides on the interest rates to be charged. According to the regulation of credit unions, only the members of the credit union are eligible to deposit money in the union or borrow money from the union. The credit unions are always committed and dedicated to the members and ensure to improve the financial status of the members. The size of the credit unions may vary in a large manner. There are credits unions available both with handful of members to thousands of members.
The credit unions are generally non-profit organizations. The credit union can also be termed as profit enterprise dedicated to earn profit for its members. The profits earned by the union are received by the members in the forms of dividends. The dividends are paid on savings that are taxed as ordinary income.
It has been seen that in the USA, the dividend rates on shares offered by the credit unions are higher. The credit unions also charge lower interest rates than banks in the USA. Usually credit unions have a lower cost of funds than the commercial banks.
The credit unions also offer several financial services like banks, but the terminology used here are different from the banks. The credit unions offer the services of share accounts, share draft accounts, share term certificates, credit cards and online banking services.
Depending on the financial structure of the country, the functionality of credit unions may vary in different countries. The operations of the credit unions of UK, credit unions of Canada and U.S credit unions are different from each other.