A credit union is a financial cooperative that is owned and controlled by its members. It is a non-profit organization that provides financial services to its members, who are also its owners. Credit unions offer a range of financial products and services, including checking and savings accounts, loans, and credit cards.
How do credit unions work?
Credit unions operate in a similar way to banks, but they are structured differently. Whereas banks are for-profit institutions that are owned by shareholders, credit unions are non-profit organizations that are owned by their members. This means that any profits made by the credit union are returned to the members in the form of lower fees, higher interest rates on deposits, and lower interest rates on loans.
Credit unions are typically smaller than banks and operate on a local or regional level. They are often organized around a specific group or community, such as a group of employees, a religious organization, or a professional association. Members of a credit union must meet certain eligibility requirements, such as living in a specific area or working for a certain employer.
Credit unions vs. banks
One major difference between credit unions and banks is their ownership structure. As mentioned above, credit unions are owned by their members, while banks are owned by shareholders. This means that the primary goal of a credit union is to serve the financial needs of its members, while the primary goal of a bank is to generate profits for its shareholders.
Another difference is the fees charged for financial products and services. Credit unions often have lower fees than banks, as they are not-for-profit organizations. This can be especially beneficial for individuals who use a lot of financial products and services, as the savings on fees can add up over time.
You may have a smaller selection of product offerings with a credit union compared to a bank. However, fewer products doesn’t necessarily mean less competitive offerings. Credit unions offer some of the best terms thanks to how they reinvest profits back into their products.
Most credit unions provide the same $250,000 insurance that banks do. However, there is a small difference in the insurance agencies: Credit unions are insured by the National Credit Union Administration (NCUA) while banks are backed by the Federal Deposit Insurance Corporation (FDIC).
Advantages of credit unions
There are several advantages to using a credit union, including:
- Lower fees: Credit unions often have lower fees for financial products and services, such as checking and savings accounts, loans, and credit cards.
- Higher interest rates: Credit unions may offer higher interest rates on deposits, such as certificates of deposit (CDs) and money market accounts, as well as lower interest rates on loans.
- Personalized service: Credit unions are often known for their personalized service and attention to their members. Because they are smaller and locally focused, credit union staff may have more time to get to know their members and understand their financial needs.
- Community involvement: Credit unions are often actively involved in their local communities, sponsoring events and supporting local organizations.
Disadvantages of credit unions
While credit unions have many advantages, there are also some potential drawbacks to consider:
- Limited accessibility: Credit unions may not have as many branches or ATMs as larger banks, which can be inconvenient for members who need to access their accounts frequently.
- Fewer products and services: Credit unions may not offer as wide a range of financial products and services as larger banks, such as investment options or trust services.
- Strict membership requirements: In order to join a credit union, you must meet certain eligibility requirements, such as living in a specific area or working for a certain employer. This can limit your access to credit union services.
Who regulates credit unions?
In the United States, credit unions are regulated by the National Credit Union Administration (NCUA), an independent federal agency. The NCUA is responsible for ensuring the safety and soundness of the credit union system and protecting the rights of credit union members.
Insurance on credit union accounts
In the United States, credit union deposits are insured up to $250,000 per depositor by the National Credit Union Share Insurance Fund (NCUSIF), which is administered by the NCUA. This means that if a credit union fails, depositors will be reimbursed for their insured deposits. It is important to note that some types of deposits, such as trust accounts and business accounts, may be subject to different insurance limits.
How to join a credit union
To join a credit union, you must first determine if you are eligible to become a member. Each credit union has its own membership requirements, which may be based on factors such as where you live, where you work, or your membership in a specific organization.
To join a credit union, you will need to complete a membership application and open a savings account with a minimum deposit, which is often a small amount. Some credit unions may also require you to pay a membership fee.
Membership requirements to join a credit union
As mentioned above, each credit union has its own membership requirements. These requirements may be based on factors such as where you live, where you work, or your membership in a specific organization. Some common membership requirements include:
- Residency: Many credit unions require you to live in a specific geographic area to be eligible for membership.
- Employment: Some credit unions may require you to work for a specific employer or be a member of a specific labor union to be eligible for membership.
- Membership in an organization: Some credit unions may require you to be a member of a specific organization, such as a religious group or professional association, to be eligible for membership.
It is important to note that credit union membership is often exclusive, which means that not everyone will be eligible to join. However, if you are not eligible for membership in one credit union, you may be able to find another credit union that you are eligible to join.
