Can you bank on that?
When choosing a credit union or bank, expert says it's important to ask questions when deciding upon one or the other
David Taintor
Issue date: 4/27/09 Section: Money/Health
With student loans, part-time jobs, savings accounts and credit cards, students have a lot to consider when choosing the right financial institutions. Two of the common options for savings and checking accounts are banks and credit unions - institutions that in many ways serve the same function.
But what are the differences between the two, and what is important to consider when choosing one over the other?
Assistant Professor of Finance Vladimir Kotomin said in an e-mail to The Spectator that credit unions are non-profit organizations and are owned by their members.
"They are organized like clubs whose members pool their savings and loan them to one another," he said. "Banks, on the other hand, are owned by shareholders and therefore strive to maximize profits."
Kotomin said on the individual consumer level there is little difference between banks and credit unions.
Kurt Bauer, president and CEO of the Wisconsin Bankers Association, an advocacy group for banks, also said banks and credit unions don't differ from one another very much anymore.
He said, however, that wasn't the way it used to be or the way it was designed. Credit unions don't pay corporate income taxes at the state or federal level, taxes that banks are required to pay. Bauer described the tax exemption credit unions enjoy, which he said costs Wisconsin tax payers $40 million a year, as historical, saying that credit unions originated in Germany and were designed to serve people of low to modest means.
Bauer said he thinks banks have a broader expertise than credit unions, because of the training employees receive.
He said banks are required to operate under the Community Reinvestment Act, a program set up to ensure that banks are serving a wide demographic of customers. If banks fail to meet the expectations of the program there are consequences that follow.
He used an analogy of a carrot and stick to illustrate the ways in which both financial institutions serve lower-income people. The stick, he said, is the Community Reinvestment Act that ensures community outreach by banks, while the carrot is the tax exemptions on credit unions. In this way, he said the stick is more effective than the carrot in serving low-income demographics.
But what are the differences between the two, and what is important to consider when choosing one over the other?
Assistant Professor of Finance Vladimir Kotomin said in an e-mail to The Spectator that credit unions are non-profit organizations and are owned by their members.
"They are organized like clubs whose members pool their savings and loan them to one another," he said. "Banks, on the other hand, are owned by shareholders and therefore strive to maximize profits."
Kotomin said on the individual consumer level there is little difference between banks and credit unions.
Kurt Bauer, president and CEO of the Wisconsin Bankers Association, an advocacy group for banks, also said banks and credit unions don't differ from one another very much anymore.
He said, however, that wasn't the way it used to be or the way it was designed. Credit unions don't pay corporate income taxes at the state or federal level, taxes that banks are required to pay. Bauer described the tax exemption credit unions enjoy, which he said costs Wisconsin tax payers $40 million a year, as historical, saying that credit unions originated in Germany and were designed to serve people of low to modest means.
Bauer said he thinks banks have a broader expertise than credit unions, because of the training employees receive.
He said banks are required to operate under the Community Reinvestment Act, a program set up to ensure that banks are serving a wide demographic of customers. If banks fail to meet the expectations of the program there are consequences that follow.
He used an analogy of a carrot and stick to illustrate the ways in which both financial institutions serve lower-income people. The stick, he said, is the Community Reinvestment Act that ensures community outreach by banks, while the carrot is the tax exemptions on credit unions. In this way, he said the stick is more effective than the carrot in serving low-income demographics.
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