Published: 23/11/2017

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Saving in credit unions is not the same as saving in credit institutions

Published: 16/2/2018
Explained are differences in the risk exposure involved in depositing money in credit unions and credit institutions.

The Croatian National Bank has recently received many enquiries from individuals who – induced by higher interest rates on time deposits offered by credit unions relative to interest rates offered by credit institutions – are thinking about depositing their savings in credit unions and who seek timely information on differences in the risk exposure involved in depositing money in credit unions. In this regard, the following facts should be noted.

With regard to risk exposure, depositing funds in credit unions is very different from depositing funds in credit institutions (banks, savings banks, housing savings banks) because of different operating conditions and status of these institutions.

Credit unions are financial institutions, the depositors of which are also their members. Therefore, by paying mandatory membership deposits, depositors become members of a credit union. This enables them to participate in deciding at the general meetings of the credit union (one member has one vote regardless of the amount of the membership deposit).

Bearing this in mind, when becoming members of a credit union, depositors have to decide whether the principles (and conditions) governing the operation of the credit union are acceptable to them or not. They bear the entire risk of depositing, i.e. investing money in the credit union; because of the described method of operation, the funds of credit union's members are not covered by the deposit guarantee scheme under the Deposit Insurance Act.

In contrast with credit unions, credit institutions are established as joint stock companies, whose depositors (or loan users) can be citizens who do not hold any shares of the bank and who cannot participate in making decisions. Individuals' deposits held with credit institutions are insured up to the amount of 100,000 euro per person (see more details at State Agency for Deposit Insurance and Bank Resolution).

Finally, it should be noted that a decision to whom to entrust funds is to be made by each individual alone bearing in mind the offered terms for depositing funds as well as all other circumstances associated with this financial decision that have an impact on the associated risks. Therefore, the offered interest rate is not the only element that should be taken into account when deciding on depositing funds.