Interest Rate Competition among C Banks, S Banks, and Credit Unions

Compared to C corporation banks, S corporation banks and credit unions are considered tax-exempt institutions, with credit unions receiving the greatest tax benefit. Institutions can choose to pass this benefit onto customers in the form of higher deposit rates and lower loan rates. We test this hypothesis by analyzing a dataset of 11 distinct deposit and loan products over 15 years and compare interest rates offered by depository institutions partitioned into three size groups. Overall, our results indicate credit unions offer higher deposit and lower loan rates compared to commercial banks, particularly for timed deposits (CDs), money market accounts, auto loans, and fixed unsecured loans. In contrast, S banks and C banks offer similar interest rates on most deposit and loan products. These findings generally hold across all size groups and differences become more pronounced when comparing larger credit unions to commercial banks. Notably, credit unions in the large size group offer better interest rates to customers for all products analyzed.