Some of the financial institutions that operate in the financial industry include banks, credit unions, and stock agencies.
What is a Bank?
A bank is a financial institution that accepts deposits to the customer while at the same time using the received deposits to create credit and lend it to the borrowers. It is important to highlight that the bank offers credit to the borrowers with a particular interest so that the organization can sustain itself while at the same time meeting its financial obligations when they fall due.
The following are some of the famous banks
- JP Morgan Chase
- Export-Import Bank of China among others
What is a Credit Union?
A credit union is a non-profit making organization, which is a money corporative that is formed by members who are brought together or united by a specific purpose. It is in this credit union where members of the group deposit their money and are entitled to loans from the pooled resources. It is important to highlight that the loan offered to members has low-interest rates as compared to that provided by the mainstream banks. Credit unions are localized and serve the interests of a small group of people, i.e., organizations.
Similarities Between Banks and Credit Unions
- Similarities Between Banks and Credit Unions in terms of “Government Regulation”
One of the main similarities between banks and credit unions is that they are highly controlled by the government and other financial agencies like the central bank and federal banks to ensure that they follow the financial policies of the country. It is worth noting that both banks and credit unions cannot operate without a license from the government and while at the same time being subjected to scrutiny and auditing.
- Similarities Between Banks and Credit Unions in terms of “Products Offered”
It is worth highlighting that the products offered by banks are very similar to the products offered by the credit union. Both financial institutions provide savings account, checking account, loans, and ATM/debit cards among others. The only difference in the services provided is that the bank is likely to provide services on a more professional and large scale as compared to the credit unions. Additionally, credit unions offer these services to the owners while banks give the services to their customers.
- Similarities Between Banks and Credit Unions in terms of “Deposit Insurance”
Because the two financial institutions receive deposits from their customers, they have implemented a mechanism to protect the deposits of their customers by ensuring that they ensure the funds of the customers with the financial insurance agencies. Securing the money provides that, in case of any unforeseen circumstance, customers will not lose their deposits while at the same time shielding the entity from experiencing the losses. Protection of the customer deposits has increased the reputation of these objects hence making them attract a large number of customers.
- Similarities Between Banks and Credit Unions in terms of “Taxes”
Both entities, banks and credit unions, are required to pay corporate tax to the federal government and other statutory charges as required by the law. There is no financial institution that is exempted from complying with tax procedures. Some of the taxes paid include the corporate tax and tax deductions from the employees of the financial system. Furthermore, the two bodies are required to pay other charges that may be instituted by local governments despite paying taxes and legal fees to the federal government.
- Similarities Between Banks and Credit Unions in terms of “Interest on Loans”
Interest on the loan is the amount that one has to pay above the principle credit as a way of catering for the risk associated with the borrowing while at the same time paying to compensate for the loss in the value of money over time. Both banks and credit unions charge a significant amount of interests’ rate to cover the risk and decline in the value of the money while at the same time helping the organization to operate. The only difference is that the interest charged by the banks is controlled by the forces of demand and supply while the benefits charged by credit unions is much lower and is internally determined and controlled.
Few pivotal points on Banks and Credit unions
- Banks and credit unions play an indispensable role in assisting business activities by proving money, which helps people to exchange goods with ease.
- More importantly, to control inflation and other market forces from harming the consumers, the government uses fiscal policies and monetary policies through financial institutions to bring the economy back to equilibrium.
- Each financial institution plays an essential role in facilitating both local and international trade through rendering and deposit taking.
Author: Jecinta Morgan
Jecinta is an experienced writer who has been writing for more than three years and she has a degree in Finance and Accounting.
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