Dave Ramsey says: Banks make profits, credit unions don’t

Dear Dave,

What’s the difference between a credit union and a bank?

— Jake

Dear Jake,

A bank is owned by stockholders. When the bank makes a profit – and they should make a profit – the stockholders, who are owners of the company, get that profit. It can be dispersed in the form of dividends, or the value of their stock is increased.

A credit union is run more like a cooperative. Technically speaking, it’s operated not for profit, and the owners are the credit union members, who are also customers.

As a customer of a credit union, whatever you pay into the credit union – the “profit” – is returned to the members in the form of increased services or actual dispersements. Sometimes, you actually get a check from the credit union.

A lot of banks don’t like credit unions, and say they have an unfair advantage because of their non-profit status. This really isn’t true. Credit unions, with whatever “profits” are made, put that money right back into creating cheaper checking accounts, better interest rates on loans, or higher interest rates on savings.

A bank could do the same thing, if it were willing to make less profit. So, there’s no disadvantage. They’re just trying to keep stockholders happy and sell stuff to customers. But really, that all means nothing if you don’t get good service from the organization!

—Dave

Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 13 million listeners each week on 585 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

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