It’s Financial Literacy Month, and I’ve been negligent not to make some related posts. Today, let’s tackle the differences between a bank and a credit union.

From the parking lot, both a bank and a credit union look pretty similar. They take deposits. They issue loans. They provide various services like direct deposit, a notary, custodial services, automated bill pay, niche savings products, financial advisory.
But from the inside, banks and credit unions have some major differences. The largest one, of course, is that banks seek to create profits to return to their shareholders, while credit unions have no equity and operate as not-for-profit entities. Any credit union profits are generally expected to be passed on to members in the form of lower-cost loans, higher-rate savings accounts, and more ancillary services.
This means at the most basic level, a bank wants to maximize net interest margin (NIM) while a credit union wants to minimize it. From a customer/member perspective, credit unions are more aligned with your interests.
However, it’s worth pointing out that service quality and breadth is often much better at banks. This shouldn’t be surprising - credit unions are essentially cooperatives, and cooperatives often lack the incentives to grow and improve. The largest credit union in the US has around the same AUM as the ~30th largest bank. Most credit unions operate on the community bank level, with only a handful in the regional bank tier.
In theory, credit unions are created for a specific class of customers, like members of the Navy or Boeing employees or residents of Vermont, but over time these rules have been loosened in how those relationships can grow or be inherited by family members.
In practice, a constraint on credit unions is that they generally cannot service businesses that are not owned by members or credibly supporting the class the credit union was formed to service.
I think it’s kind of curious that no credit union-like DeFi protocols have succeeded in the borrow-lend space. One could imagine that you had to hold some de minimus amount of the gov token to deposit or borrow - similar to how credit unions require you to hold some small share account, usually $25 or $50.
Although, in an ecosystem dominated by overcollateralized lending, perhaps this makes little sense. To be a borrower on Aave or Compound, you have to already be a depositor. A credit union model, which relies upon building a relationship with the member while also have a clear idea of how the user and their community’s needs differ from the average person, might make more sense with an unsecured lending protocol - an area that has yet to really come into its own.
Below is a summary from the @Idaho_Central Credit Union, which is one of the more helpful summaries you can fit in a one-page graphic: