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What is a credit union?

A credit union is not a bank or a savings and loan association. It’s 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. They’re also 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.

Dive deeper: Credit unions: Everything you need to know

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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