Aug 12 2009

A Comparison of Bank and Credit Union Pricing


U.S. credit unions famously have a long-running federal tax exemption on their corporate-level earnings, but a lesser-known tax benefit also exists for banks. Banks may incorporate as a Subchapter S (Sub-S) corporation, which eliminates federal taxes on corporate-level earnings.

In A Comparison of Bank and Credit Union Pricing: Implications for Tax Benefits of Subchapter S Incorporation, Auburn professor Steve Swidler compares these pricing models and finds that credit union members benefit on both the deposit and loan side for almost every product category.

This finding should not shock readers of this report. Sub-S banks are profit-oriented organizations with shareholders (albeit limited numbers of them) who demand good returns on their investments. Credit unions, on the other hand, are given a tax benefit but for a very different purpose. Credit unions have a special mission to serve the needs of everyday people, not profit-oriented investors. As this study points out, the public benefits from this, in part, through lower loan rates and higher deposit rates. Policymakers should find this study useful in assessing the efficacy of both the Sub-S and credit union tax exemptions.

Report Number 192