Let’s talk about the difference between a credit union and a high street bank
Many people ask us what the difference between a credit union and a bank is. We wanted to provide some clarity on this as we know it can be confusing due to both institutions providing similar services.
The main difference between the two is that a credit union is a not-for-profit organisation, where surplus profits are given back to the members. Whereas a bank is a profit-making organisation and profits are used to satisfy shareholders.
Members vs customers
If you join a credit union, you’ll most likely be referred to as a member and you’ll be required to share a common bond with all the other members; this is usually location or employment based. For example, only members of the UK Police Family can join No1 CopperPot Credit Union. You’re called a member because you have a say in how things are run, you can share your opinions at events such as the annual general meeting (AGM).
With many UK banks, you will usually be referred to as a customer and you will be able to use their services regardless of where you live or work. You are a customer of a bank as you don’t have a say in how they are run and are consuming their product.
You might find that your local credit union doesn’t offer as many products or services as a bank; this is often due to credit unions being much smaller organisations. All credit unions are for people rather than for profit, this means focusing on providing the best customer service and products for its members, rather than focusing on making a profit.
Due to the size of many UK banks, they usually have a lot of funds coming in and out of their business through their savings, loan and mortgage accounts. The more money they lend the more they make, resulting in profits for the business. This means that they have the funds to offer a wide range of services and products to their customers, which can increase their popularity.
As service-based organisations both banks and credit unions aim to provide excellent customer service. However, below I aim to talk through what I perceive as one of the differences between the customer experience offered by each.
The credit union motto is ‘people helping people’ and because of this they always strive to provide the best service to their members. An example of this could be when a member applies for a loan, you may find that one of their loans team would look through the application manually. When looking through the application they can call up the applicant to discuss any discrepancies before the final decision is made – this is what happens at No1 CopperPot.
Banks on the other hand, often use automated processes when assessing loan applications. This means they set up predetermined requirements for their applications. An example could be if you were applying for a loan, they could decide that they won’t approve any applications with a credit score below 300. Therefore, if an applicant’s credit score was below this their loan would get declined automatically.
The customer service team within a credit union is usually smaller so it’s more cohesive whereas banks will often have teams dedicated to different areas of customer service, depending on what you need. This is largely due to the size of banks and the huge number of queries they’ll deal with daily.
One of the great benefits of many credit unions is that there are usually little or no administration charges when applying for services such as loans or mortgages.
Often with banks they will have arrangement fees when you use certain services, for example when you take a mortgage.
Regardless of which financial institution you decide to hold your savings with, it’s important to find out whether they are regulated by the Financial Services Compensation Scheme (FSCS). The FSCS covers a wide range of financial products and if the bank or credit union you are with is covered by them, if they fail you could be entitled to compensation of up to £85,000.
|Subscribe to our monthly “Let’s talk about money” newsletters here!|