FAQs About Credit Unions
Today 7,000 credit unions serve more than 97 million Americans around the country. Even if you're already a credit union member, you may not understand how credit unions differ from financial institutions like banks. This "frequently asked question" series can help answer your questions.
What is a credit union?
A credit union is a cooperative financial institution, owned and controlled by its members. Credit unions typically serve groups of people who have something in common—where they live, work, or attend church, for example. Becoming a member of a credit union carries power because credit unions are not-for-profit, and exist to provide members with a place to save money and get loans at reasonable rates.
Credit unions, like all other financial institutions, are closely regulated. The National Credit Union Share Insurance Fund, administered by the National Credit Union Administration, an agency of the federal government, insures deposits of credit union members at more than 98% of federal and state-chartered credit unions nationwide, and the remainder are insured by safe private insurers. Deposits are insured up to $250,000.
How did credit unions form?
When a season of failed crops in 17th-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.
What is the credit union philosophy?In 1935, when credit unions were helping Americans through the Great Depression, the treasurer of a Midwestern credit union said that credit unions were "not for profit, not for charity, but for service," and that philosophy holds true today.
Credit unions continue to look out for their members' interests and provide a level of service that generally is not available at other financial institutions.Credit unions continue to look out for their members' interests and provide a level of service that generally is not available at other financial institutions. Whether it's providing a loan to help a member cover unexpected medical bills, giving financial counseling to a member whose employer closed its doors, or simply offering a better deal on a used-car loan or mortgage, credit unions make a difference for their members and the communities they serve. 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:
What makes a credit union different from a bank?Like banks, credit unions accept deposits and make loans—but unlike banks, credit unions are not in business to make a profit. Banks exist to make money for their stockholders, not for their depositors. Credit unions exist solely to serve their member-owners, and benefits are returned in lower loan rates and higher deposit rates. Credit unions are the only democratically controlled financial institutions in the U.S. Members elect a volunteer board of qualified individuals to oversee the credit union and the president reports to this board. Bank directors, however, are paid and legally bound to make decisions that benefit stockholders, not customers. For example, last year, on average, each credit union member got a direct financial benefit of $62. That came from lower rates on loans, higher returns on savings, and lower and fewer fees than he or she would have paid by doing business with a bank.
Credit unions are focused on people, not profits.But that $62 benefit is only an average. Active members who use many credit union services often see even greater benefits. The annual difference amounts to about $6 billion spread among 97 million credit union members nationwide.
Why should I join a credit union?
How can I join a credit union?
Interested in becoming a credit union member? The first step is finding the right one. Credit unions differ from banks in many ways, but one of the main differences is membership. To join a credit union you can live or work in a "charter area," or belong to one of its select employee groups. These tips will help you find a credit union you can join:
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