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FAQs About Credit Unions



Today nearly 7,000 credit unions serve more than 93 million Americans around the country. Even if you're already a credit union member, you may not understand how a credit union differs from more traditional financial institutions such as thrifts and 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 who have something in common, such as where they live, work, or attend church. 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.

Credit unions were created to enable people to pool their financial resources to help themselves and each other.

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. 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:

  • Open and voluntary membership
  • Democratic control
  • Nondiscrimination
  • Distribution to members
  • Building financial stability
  • Service to members
  • Ongoing education
  • Cooperation among cooperatives
  • Social responsibility

These principles are founded in the philosophy of cooperation and its central values of equality, equity, and mutual self-help. They express, around the world, the principles of human development and serving a common interest through people working together to achieve a better life for themselves and their communities.

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 fewer and lower fees, 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 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.

Why should I join a credit union?

  1. Credit unions are focused on people, not profits. Credit unions operate by a "people helping people" philosophy that is hard to find at many other financial institutions.

  2. Credit unions exist to serve people—including people of modest means.

  3. Financial education is available to all members. Credit unions assist members in becoming better-educated consumers of financial services.

  4. As not-for-profit institutions, credit unions offer better rates on credit cards—up to three percentage points lower than the average bank card rate.

  5. Credit unions are available in places where banks typically aren't, such as community development neighborhoods.

  6. As a member of a credit union, no matter how much money you have on deposit, you have an equal voice in how your credit union is run.

  7. Superior service, convenience, and technology. Credit union members receive the service convenience of today's technology through online and telephone banking.

  8. Use the credit union services you need. If you don't need a sophisticated website or 24-hour loan services, you may use the credit union services you need most.

  9. Many credit unions offer no-surcharge ATMs that any credit union member can use.

  10. Your credit union can put you in business with a small-business loan. And some credit unions have established a relationship with the Small Business Administration to expedite loans to credit-worthy small businesses.

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. To find a credit union you can join:

  • Ask the credit union offering this article on its website. If you found this article, you may find you're eligible to join our credit union.
  • 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 doesn't sponsor a credit union, perhaps your spouse's 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.
  • Use the credit union finder to find a credit union that is right for you at www.asmarterchoice.org


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