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Credit unions: Everything you need to know

At a glance:

  • What is a credit union?

  • How did credit unions form?

  • What services do credit unions provide?

  • How to get more information on credit unions

  • Summary of credit unions

Credit unions are sometimes referred to as "the other financial institution" because they're not a bank, insurance company, brokerage firm, or mortgage company. Yet they often provide many of the same services.

At present, 5,500 credit unions serve over 112 million Americans across the United States.

A Navy Federal Credit Union logo seen displayed on a smartphone. (Photo illustration: Rafael Henrique/SOPA Images/LightRocket via Getty Images)
A Navy Federal Credit Union logo seen displayed on a smartphone. (Photo illustration: Rafael Henrique/SOPA Images/LightRocket via Getty Images)

What is a credit union?

A credit union is not a bank or a savings and loan association. A credit union is a cooperative financial institution, owned and controlled by its members. Credit unions typically serve groups who have something in common, such as where they live, work, or attend church.

Credit unions are not-for-profit cooperatives owned and controlled by their members for the benefit of their members. They exist to provide a place to save money and get loans at reasonable rates. Because a credit union is not-for-profit, any net earnings it might have are used to benefit its members.

Who regulates them?

Credit unions, like all other financial institutions, are closely regulated. The National Credit Union Share Insurance Fund (NCUSIF), administered by the National Credit Union Administration (NCUA), an agency of the United States Government, insures deposits of federally chartered credit unions and most state-chartered credit unions nationwide. State-chartered credit unions that are not covered by NCUSIF may be insured by private insurers. Deposits are generally insured up to $250,000 ($250,000 for retirement accounts).

They are not for profit

Like banks and savings and loans, credit unions accept deposits and make loans—but because they are not-for-profit, credit unions provide their member-owners with benefits such as lower loan rates and higher deposit rates. Credit union members elect a volunteer board to oversee the credit union, and the president reports to this board.

How did credit unions form?

When a season of failed crops in seventeenth-century Germany led to widespread poverty, villagers pooled their money in an effort to save themselves from poverty and starvation. They formed a jointly owned mill and bakery that sold bread to members at affordable prices.

Savings accounts and small loans also were available. The modern credit union movement grew out of an idea that people could work together to create solutions to meet their financial needs.

When and where they started

The first organized cooperatives, credit unions, and credit societies started in Europe in the mid-nineteenth century. In the early 1900s, the credit union idea crossed the Atlantic, and in 1909, Massachusetts was the first state to pass a state credit union act. In 1921, Edward A. Filene, a Boston merchant, and attorney Roy F. Bergengren worked through their Credit Union National Extension Bureau to get effective credit union laws in all states and on the federal level. By 1935, there were over 3,000 credit unions operating in 39 states and serving more than half a million members.

Principles they operate by

During the Great Depression, the treasurer of a midwestern credit union summed up the credit union philosophy when he said that credit unions were "not for profit, not for charity, but for service." In 1984, the World Council of Credit Unions approved the nine International Credit Union Operating Principles that remain the cornerstone of the credit union movement. They are:

  • Open and voluntary membership

  • Democratic control

  • Nondiscrimination

  • Service to members

  • Distribution to members

  • Building financial stability

  • Ongoing education

  • Cooperation among cooperatives

  • Social responsibility

Credit unions were created to enable people to pool their financial resources to help themselves and each other. Today, 5,500 credit unions serve over 112 million Americans around the United States.

What services do credit unions provide?

Credit unions operate by a "people helping people" philosophy. Financial education is available to all members. Credit unions assist members in becoming better-educated consumers of financial services.

Savings and checking

Credit unions offer savings and checking accounts as well as individual retirement accounts and term-savings certificates. Interest-bearing accounts generally may have higher rates of return than those of similar accounts in other financial institutions. Many also offer no-surcharge automatic teller machines (ATMs). Deposits may be guaranteed up to $250,000 ($250,000 for retirement accounts) by the National Credit Union Share Insurance Fund (NCUSIF) or by private insurers.

Credit and loans

Credit unions may offer lower rates on credit cards and other loans than other institutions. Some credit unions have established a relationship with the Small Business Administration (SBA) to expedite loans to creditworthy small businesses.

Insurance and investments

While insurance and investments are not credit union products or services, nor are such products guaranteed by the credit union's deposit insurance, many credit unions have representatives of insurance and securities companies available to assist members in making purchases of insurance products and securities like stocks, bonds, and mutual funds.

Location

Credit unions are available in places where banks typically are not, such as community development neighborhoods.

Members of a credit union have an equal voice in how the credit union is run, irrespective of the amount of money deposited.

Patelco Credit Union with sign and logo in Dublin, California, July 23, 2018. (Photo: Smith Collection/Gado/Getty Images)
Patelco Credit Union with sign and logo in Dublin, California, July 23, 2018. (Photo: Smith Collection/Gado/Getty Images)

How to get more information on credit unions

One of the main differences between banks and credit unions is membership. To join a credit union, you can live or work in a "charter area," or belong to one of their select employee or association groups.

Check with your employer

Often, you will find out when you are hired that the company sponsors or has access to a credit union.

Ask your family

If your employer does not sponsor a credit union, perhaps your spouse or another family member's employer does. Many credit unions will allow family members to join.

Ask your neighbors

Community fields of membership serve a region defined by geography rather than by employment or family association.

Check the Yellow Pages

You will find a listing of credit unions in your community. Give them a call or visit the Website.

The Credit Union National Association (CUNA)

The Credit Union National Association (CUNA) is a not-for-profit trade association of America's credit unions. It was established in 1934 and is governed by a voluntary board of directors. For more information on credit unions and membership, go to their Website at www.cuna.org/.

Summary of credit unions

Credit unions have grown since the Great Depression largely because of the services they provide and the idea that they can pass along "profits" to their membership in the form of lower loan rates and higher savings rates.

While providing many of the same services as banks and other financial institutions, credit unions are different in that you must be a member to use their services. However, finding a credit union you can join is easy.

This content was created in partnership with the Financial Fitness Group, a leading e-learning provider of FINRA compliant financial wellness solutions that help improve financial literacy.

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