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A representative at my federal credit union used dividend and interest exchangeably in our communication, claiming the two were the same concept in their financial institution, which doesn't sell stocks. I was wondering if what she said is really true?

What differences and relations are between dividend and interest?

Thanks and regards!

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4 Answers 4

To put it simply interest is the fee you get for loaning money to the bank / government / company / person or whomever you lend it to.

A dividend is the money that a company pays out to its owners.

For some cooperatives (may or may not apply to your credit union) you become an owner through using it, such that they'll pay you a dividend instead of or as well as interest. Which could explain them using the term interchangeably .

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nice answer. Tim needs to see the 1099 they send to understand if it's truly a dividend. –  JoeTaxpayer Apr 12 '12 at 16:12
    
@JoeTaxpayer: My 1099 says it is "interest income". –  Tim Apr 12 '12 at 16:20
    
Thanks, psatek! I wonder in the case of your last paragraph, i.e. when I am an owner of the copperative, does "dividend" mean "the fee you get for loaning money to the bank / government / company / person or whomever you lend it to"? –  Tim Apr 12 '12 at 16:23
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The dividend doesn't mean the fee for loaning money just some cooperative banks may give out smaller interest payments than commercial banks, which will be compensated by a dividend. In an extreme example you could have a cooperative bank that would pay 0% interest but a larger dividend to the account holder. –  psatek Apr 13 '12 at 11:40
    
@psatek: Thanks! Are the followings correct? (1) The distinction between interest and dividend is only useful for the credit union when it is paying its taxes? (2) For its costumers like me, whether the distribution payment I have been given is interest or dividend doesn't matter, and the distribution will always be taxed in the same way and same as ordinary income for me? –  Tim Apr 16 '12 at 1:47

Credit Unions are structured such that the account holders are in fact the owners of the institution. Thus, the money invested in your savings account is in fact a share of ownership, and the interest paid to you is dividend.

Tax-wise, these dividends are usually treated as interest income.

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A lot of Credit Union terminology is based around this idea. Savings accounts are called "share" accounts, checking accounts are called "share draft" accounts, etc. And yes, being a part-owner of the institution means you get to vote for the Board of Directors. –  Dan B. Sep 24 '12 at 2:56

One big difference: Interest is contracted. They can change the rate in the future but for any given time period you know what you're going to get.

Dividends are based on how the company did, there is no agreed-upon amount.

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Dividend is a payment which is paid by the company after getting profit or interest is plus paid amount which we get on our income.we can pick up the dividend as a form of interest on our investment

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