What is a Credit Union?


What is a Credit Union?

A credit union is a member-owned, not-for-profit cooperative financial institution owned and operated by its members. These members -- who are united by a common bond of employment, association, or community -- democratically operate the credit union under state and federal regulation. There are more than 11,000 credit unions in the United States and Canada, serving more than 77 million members.


What are the Benefits of Credit Union Membership?

Credit unions exist solely for the purpose of meeting the financial needs of their member-owners. To that end, credit unions not only provide outstanding personal service, but members often earn higher returns on their savings while paying lower rates for loans. Each year, credit unions consistently outshine banks and S&Ls in the area of consumer/member satisfaction. Credit unions are based on a one-member, one-vote structure, thus giving members the power to direct credit union policy in an effort to meet member needs. This structure is vastly different from the for-profit sector where stockholders vote according to the number of shares of stock they own. Their not-for-profit status enables credit unions to return more of their earnings to their members in the form of competitive loan and savings rates. For instance, credit unions usually charge lower interest on credit cards than most other providers, and many credit unions charge no annual card fee.


Who Can Join a Credit Union?

Credit union members generally share a common bond such as occupation (same employment or line of work), residence (live or work in the same area), association (same church, professional, civic or fraternal group, etc.) and family (membership is extended to any member's immediate family). Federal and state credit union laws restrict credit unions to serve only the groups specified in their charters. The group or groups served by a credit union are referred to as its field of membership (FOM).


What Types of Services Do Credit Unions Offer?

Because each credit union is autonomous, the financial products and services offered vary. For example, while most credit unions offer savings accounts and consumer loans, many also offer a full spectrum of financial products and services such as dividend-bearing checking accounts, payroll deduction, direct deposit, automated teller machines (ATMs), credit cards, individual retirement accounts (IRAs), share certificates (similar to Certificates of Deposit, or CDs), money orders, traveler's checks, home mortgage loans and much more. And best of all, credit unions are safe and sound -- US deposits are federally insured up to $250,000 by the National Credit Union Administration, a U.S. government agency.


How Do Credit Unions Differ From Banks And Other Types of Financial Institutions?

The biggest difference between credit unions and other financial institutions is that the members are the owners. Credit unions exist solely to serve their member-owners, who are the only depositors. The benefits of ownership are returned to the member in the form of lower rates, bigger dividends, and personal service. After meeting normal expenses and the reserve requirements needed to ensure financial stability, credit unions return all net earnings to their members in one form or another. The absence of a profit motive allows credit unions to focus their energy on meeting members' needs -- and this has helped credit unions follow a different path from that taken by other financial institutions. Instead of trying to maximize revenues from members, credit unions act as partners in promoting the financial well-being of those who use their services.