Credit unions and banks: institutional differences.

• Author: Hardan-Smith, Sara J.

Banks and credit unions in today's market strive to offer Alaskan customers benefits with lower percentage rates and quality service.

Although both seem to provide the same services, there are behind-the-scenes disagreements and competition.

OWNERSHIP

The main difference between banks and credit unions is ownership.

Banks are commercial businesses that offer services to gain a profit. Anyone is eligible for the services provided by a bank.

Those who buy stock in the bank own shares of the business and only those who own stock can vote for the board of directors; the customers of the bank do not have a say. The board of directors is paid a salary while paid staff performs daily operations.

Investors who may or may not use the financial intuition own banks; banks' primary purpose is to provide a sufficient return on investment to their owners.

Credit unions consist of members who pool their savings and loan their deposits to each other. They are democratically operated with each member having an equal vote in the selection of the board of directors who are elected from among the membership and voluntary serve while receiving no compensation.

Credit Unions are cooperatives, owned by members, and do not have a separate group of investor requirements.

Tom Newins, senior vice president of member services for Credit Union One, said members benefit from the differences.

"Without these additional burdens, credit unions are often able to pay a higher return on their deposits, and charge lower loan rates and less fees," he said.

HISTORY

Edward A Filene, a Boston merchant, is credited as the father of the American credit union movement. Observing the credit union philosophy in India, he envisioned that a new type of bank could turn any population's financial needs into prosperity.

According to Nancy Bear Usera, senior vice president of corporate development at Alaska USA Federal Credit Union, credit unions were chartered for the purpose of providing access to financial services for working men and women and small businesses.

The Federal Credit Union Act was passed in 1934, when banking institutions primarily served big business and the wealthy. The general public and small businesses were essentially disenfranchised from access to financial services and the credit and savings opportunities they needed to advance economically.

"As the economy has grown and small businesses and consumers have become a more and more significant factor in the economy's success, access to financial services has become...