Retail banks and credit unions, are two distinct financial institutions that share similarities only in terms of services. However, the two entities serve different purposes while offering banking services. So, what is the major difference between retail banks and credit unions? Let us find the answer here.
Retail Banks
Retail banks are banks that provide financial services mostly to the public in general and less to large corporations or other banks. Retail or personal banking offers a wide range of services that include monitoring accounts, offering loans, issuing credit and debit cards, online banking, mobile banking, and financial advice.
Through retail banks, customers manage their money effectively. These banks have a significant contribution to economies as they allow credits to individuals and small businesses. From local community banks to large corporate banks, Retail banking encompasses all profit banking institutions. Retail banking has taken a new height with the introduction of digital banking in the last two decades.
Credit Unions
Credit unions are non-profit cooperative financial institutions that are committed to offering services like deposits, making loans, and other financial services. This member-owned financial cooperative offers all financial services that retail banks offer, such as loans, savings accounts, investment accounts, and credit cards. The members of credit unions elect a volunteer to manage the institution from the board of directors. These financial institutions offer lower rates on loan services and products.
The Key Difference Between Retail Banks and Credit Unions
Although both financial entities offer banking services, there is a major difference between the two.
Profit is the Differentiating Factor
Retail banks are for-profit institutions, and credit unions are not-for-profit. Profit is the factor that differentiates the two financial institutions from each other. Banks are established to fulfill the purpose of earning and managing profits. Whereas credit unions are non-profit financial organizations that focus on offering personalized financial services to their members only.
Difference in Ownership
Shareholders own a retail bank. On the contrary, credit unions are owned by their members. This difference in ownership makes the two entities distinct.
Difference in Some Services
Although both financial entities offer services of loans and savings accounts in general, the credit unions focus more on loans. Retail banks have a wider service line compared to corporate unions.
Difference in Fees and Interest Rates
Fees and interest rates on loans and credit products are lower in credit unions in comparison to retail banks. As credit unions are not-for-profit, they do not charge a high interest rate on loan amounts.
As seen above, there are various key differences between retail banks and credit unions, and both financial institutions deliver different values. Customers looking for in-person services and access to technology are likely to go for banking. On the other hand, customers valuing better rates and personalized services can opt for credit union services. As distinct financial entities, credit unions and retail banks contribute significantly to an economy.