QUESTION: What are the major differences between a credit union and a bank?

ANSWER: A credit union is a member-owned, not-for-profit financial cooperative, while a bank is a shareholder-owned, for-profit financial corporation. Once an individual decides to open an account at a credit union, he or she becomes an owner and can share in the credit union’s profits by way of reduced fees, lower loan rates and higher deposit rates.

In contrast, banks are owned by shareholders, who expect adequate returns on their investment. Because banks must perform well in order to offer higher returns to their shareholders, they are driven by profit. This often comes in the form of higher interest rates, fees and more account requirements for customers.

The credit union’s member-owner model also gives each member a voice in how the credit union is run. Members get to elect a board of directors to oversee the direction of the credit union, to ensure the organization is acting in the best interests of its member base. On the other hand, a bank’s board of directors is elected by its shareholders, not its customer base. Customers don’t have the opportunity to vote unless they own shares in the bank.

Q: What are some benefits small-business owners can see from using a credit union versus a bank?

A: Credit unions provide similar products and services as banks — for businesses, this includes checking and savings accounts, lines of credit, a variety of loans and credit card options. Due to their not-for-profit model, credit unions are able to charge little to no fees on these accounts, provide lower rates on loans and credit cards, and pay higher deposit rates. In general, borrowing money is less expensive, easier and much more flexible at a credit union, which is always a plus to small-business owners. Many small businesses that would not qualify for extensions of credit at banks can borrow at their credit union.

In addition, business owners borrowing from credit unions benefit from a greater attention to customer service. Branch employees know their members well, many times recognizing them by name, and can thus provide member-focused — rather than profit-focused — loan options, product recommendations and personalized service.

Q: What are some drawbacks to a credit union versus a bank?

A: In general, credit unions are smaller than banks and might have a more limited geographic footprint or fewer resources. However, many credit unions have ATM and branch-sharing arrangements with other financial institutions that provide added convenience to members. For example, Hawaii State FCU members can conduct certain transactions at credit union locations in Hawaii’s “shared branch” network, a reflection of the “people helping people” philosophy of credit unions. Technology innovations have also made it easier for members to access their accounts online, from anywhere.

Field of membership restrictions might affect the choices of credit unions to join. Credit unions serve specific groups of members, and often people become eligible to join through their employer (Hawaii State FCU serves state and county employees, as well as select employees in the private and nonprofit sector) or through family members. While eligibility is a factor, a large portion of the population on Oahu, and a growing number on the neighbor islands, are able to become a member at a local credit union.