(Journal Star (Peoria, IL) Via Acquire Media NewsEdge) Feb. 22--It's no secret that banks compete. Billboards advertising their best loans and lowest rates are designed to convince consumers that they have the vault for you.
While ads for credit unions might seem pretty similar through the car windows of passersby, the financial institutions have major differences in structure.
Banks are highly regulated financial institutions that pool and invest money, pay taxes and make a profit.
Credit unions are their tax-exempt counterpart, offering many of the same services to pool and invest money, but they don't pay taxes, federal or state, and don't pay out profits to shareholders.
"We felt as a credit union we have a significant advantage as we don't have to decide between what's best for our stakeholders and our customers because our customers and our stakeholders are the same person," said Sue Portscheller, CEFCU's vice president of marketing.
CEFCU, like all credit unions, started out humbly serving only a small population of Caterpillar Inc. employees. Today the credit union has nearly 300,000 members, more than half of which live in Peoria, Woodford and Tazewell counties.
Credit unions operate under a member-owned cooperative system. Even a credit union's board of directors are volunteers elected by members. Retained earnings are paid out to members in the form of dividends and breaks in fees and lower loans rates.
The credit union industry, which began as a solution for citizens who couldn't be approved by traditional financial institutions, has evolved into a trillion-dollar industry offering virtually all the financial services as banks.
"Credit unions were created for a purpose," said Linda Koch, president and CEO of the Illinois Bankers Association. "Today they are larger than over 90 percent of community banks."
According to a comprehensive study by the Illinois Bankers Association on 2012 earnings, if not for their tax-exempt status the state's credit unions would have a total state and federal income tax obligation of $54 million.
As is, they paid nothing and banks paid more than $978 million, giving credit unions a distinct advantage in direct competition, bankers say.
Many credit unions, such as CEFCU, re-invest those dollars that aren't being paid for taxes or in returns to shareholders to expand the business.
"A big place we're investing more is in technology -- online banking and mobile banking," said Matt Mamer, chief operations officer of CEFCU. "More of our members are choosing those electronic options."
- CEFCU also opened a new branch in Germantown Hills last year.
And while credit unions serve a large population across the economic spectrum, they still serve that intended purpose of offering financial services to underserved citizens, said Patrick Smith, vice president of communications and regulatory affairs for the Illinois Credit Union League.
"The stories we receive about how people got their first auto loan when somebody else turned them down or their first start on a home," Smith said. "(Credit unions) formed out of need when other financial institutions wouldn't help part of the population. They've gotten bigger, but that's still ingrained in the credit union philosophy."
Despite their differences, credit unions and banks offer a similar consumer experience, both typically offering credit cards, ATM services and home or auto loans. While the structural differences can be easy to spot, the savings might be more difficult to find.
"Credit unions claim that you can get better rates through their organizations as opposed to banks because they don't pay taxes," Koch said. "And in a lot of cases banks offer cheaper fees and better loans."
"You really do have to shop around."
Look for our Extra special section on personal finance and retirement in the Sunday, Feb. 23 edition of the Journal Star, and check out daily posts here.
Laura Nightengale can be reached at 686-3181 or firstname.lastname@example.org. Follow her on Twitter @lauranight.
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