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Q: "credit union versus savings bank" ( Answered,   0 Comments )
Subject: "credit union versus savings bank"
Category: Business and Money > Economics
Asked by: jaschjr-ga
List Price: $2.50
Posted: 01 Dec 2002 11:33 PST
Expires: 31 Dec 2002 11:33 PST
Question ID: 117276
"credit union versus savings bank"

Request for Question Clarification by justaskscott-ga on 01 Dec 2002 11:46 PST
What is your specific question?  Do you want to know the definitions
of "credit union" and "savings bank"?  Do you want a comparison of
certain features of these entities, such as which is better for
particular people to use?
Subject: Re: "credit union versus savings bank"
Answered By: funkywizard-ga on 01 Dec 2002 17:37 PST
To compare credit unions and savings banks, it is helpful to first
decide what each is, their features, and their differences.

From the CUNA website [ ], a credit
union is "a cooperative financial institution, owned and controlled by
the people who use its services. These people are members. Credit
unions serve groups that share something in common, such as where they
work, live, or go to church. Credit unions are not-for-profit, and
exist to provide a safe, convenient place for members to save money
and to get loans at reasonable rates."

Thusly, a credit union is like a bank, except that instead of being a
for profit business, it exists solely for the purpose of providing
service to its members. Unless you are a part of the group the credit
union is designed to serve, one may not join it. For instance, if a
college had a credit union for its students and faculty, only students
or faculty would be allowed to join the credit union.

For a credit union, deposits are insured. According to the CUNA
website [ ]
"The National Credit Union Share Insurance Fund, administered by the
National Credit Union Administration, an agency of the federal
government, insures deposits of credit union members at more than
11,000 federal and state-chartered credit unions nationwide. Deposits
are insured up to $100,000."

Because credit unions are non-profit, they often have better interest
rates than other banking institutions. From, a page
titled "Credit union comparison with banks and thrifts Monthly survey:
Credit unions beat banks for best rates" [ ], they show that credit
unions have lower loan interest rates and higher investment interest
rates than banks and thrifts.

For savings banks, I found an article at titled
"What is a Savings Bank ?" [ ] where it stated
"savings banks are Retail Banks and other similar financial
institutions that generally have a significant share in their national
domestic banking markets, maintain broad national distribution
channels and enjoy a common customer oriented and regionally rooted
banking tradition, acting in a socially responsible manner. Their
market focus includes amongst others individuals, households, SMEs and
local authorities. Their distinguishing feature is that they wish to
cooperate with essentially similar types of bank internationally on
cross border projects and issues".

I found this quote a little hard to follow, so to clarify the issue of
what exactly a savings bank is, I searched a little further. The
website from the savings bank of walpole in an article titled "What is
a Mutual Savings Bank?" [ ], had
this to say about savings banks: "The Mutuality in Mutual Savings
Banks defines their original purpose to provide banking services and
access to credit to people who, in spite of their best efforts, were
effectively ignored by the large and established banking community.
Featuring the Trustee System, the organization of Mutual Savings Banks
distinguishes it from the co-operative banks." It goes on to say that
"The original intent was not to earn a profit for the founders of the
bank. Instead, the earnings would go to or benefit the depositors.
Profit not directly paid to depositors in interest benefits the
depositors by being held in reserve as retained earnings. This reserve
ensures that even in adverse situations for the bank, the depositors’
principal can be paid on request. It is upon these principles that
today’s Mutual Savings Banks operate."

However, the same article goes on to the meat of the matter "Mutual
Savings Banks are organized under the Trustee System, and it is this
characteristic that distinguishes the Mutual Savings Banks from
co-operative banks where the customers are owners." So I decided it
would be important to find what the trustee system is. Luckily, the
same article explains this as well, "Trustees begin as members of the
larger group known as the Corporators. Corporate powers of the Mutual
Savings Bank are vested in the Corporators, and this group represents
the diverse interests and communities served by the bank...Corporators
elect by majority vote individuals to serve as new Corporators and
Trustees...Trustees are responsible for seeing that the interests of
the depositors, borrowers, and members of the community in which they
serve are considered when management decisions are made. Further, a
Board of Trustees sees to it that the customers’ deposits are kept and
invested safely, interest is paid to the depositors out of the revenue
generated from investments after deducting expenses, and that the
principal is available to customers on request. It is this Trustee
System that ensures that the original purpose of savings banking is
carried out."

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