Unless you work for a bank, or have a vested interest in the financial industry, you probably wouldn’t think to ask whether your bank is mutual, traditional or a credit union. They offer the same types of products and services, such as checking and savings accounts, CDs and consumer loans, and on the surface, they appear to operate the same way. So how are they different, and how does this affect you?
The difference between mutual banks, traditional banks and credit unions lies in their ownership structure.
A traditional bank is publicly owned by stockholders. The stockholders can be individuals or companies. This type of bank is publicly traded and exists to provide a return on investment to its stockholders first. Profits are turned over to stockholders in the form of dividends. Traditional banks can be bought and sold, and they can either operate independently or be owned by other banks.
A mutual bank is customer-focused because it is owned by its customers. When you open a checking or savings account with a mutual bank, you become a part-owner of the institution. Also, a mutual bank can pay dividends to its customers, but it is not required to. This flexibility enables the institution to put the profits back into the bank and reward customers if it chooses to do so. Mutual banks also offer an element of stability because they are independent and not publicly traded. Lastly, mutual banks are typically very community-focused and make significant financial contributions to their communities.
Credit unions are also customer-focused, however, their structure is similar to a non-profit. Their profits go back into the credit union and are used to offer benefits to its members, such as low interest rates. Credit unions are often smaller than banks and sometimes require membership in certain associations in order for accounts to be established.
Where you decide to bank is usually determined by a number of factors, including products and services, rates, customer service and community focus. Understanding the difference between how a mutual bank, traditional bank and credit union operates could play a role in where you decide to invest your money.
Franklin Savings Bank is a mutual bank that has been a part of your community for over 150 years. We are proud to be a mutual bank because it enables us to take care of our customers and our communities, while being committed to your growth, stability and advancement. Click here to learn more about the history of FSB.