What is a credit union?
August 2, 2022 3 min read
Credit unions are nonprofit institutions that provide financial services. But they’re member-owned, often by groups of people who have something in common. That could be based on location, employer or membership in a special-interest group. Credit union members can often bring their family in, too.
In many ways, credit unions function like typical banks. But there are some key differences.
- Credit unions are similar to banks.
- Credit unions offer financial benefits for members but may have fewer options for accounts and financial services than banks.
- Thoughtfully comparing credit unions and banks can help you decide where to keep your money and who to borrow from.
How credit unions work
Credit unions offer experiences similar to those offered by banks. They provide a range of financial services, like checking accounts, savings accounts, credit cards and loans. They make money through account fees and interest on borrowed funds.
Members make deposits into checking and savings accounts, and credit unions use those deposits to make short-term loans to other members. Deposits are seen as buying shares in the credit union. Anyone who has an account is a member and an owner.
Like banks, credit unions have employees and use some of their revenue to run the organization. But they also have a number of volunteer members who help keep the organization going. The credit union returns any profits to members in the form of low fees, low interest rates and high savings rates.
Like banks, credit unions are federally insured.
Things to know about credit unions
The benefits of credit unions can vary depending on your needs and the particular credit union in question. So when you’re deciding whether to become a member of a particular credit union, here are some things you can consider.
Sometimes, credit unions can offer low- or no-fee accounts. But it can be helpful to compare credit unions and banks, because some banks also offer low- or no-fee accounts.
Credit unions may offer competitive rates on student loans, car loans, credit cards, mortgages and other types of debt.
Interest rates for saving
Credit unions can also offer beneficial savings interest rates.
Community investment and commitment
Because credit unions are often organized locally or around a shared interest, there’s often an emphasis on giving back to the community. Credit unions typically have a volunteer board of directors who are invested in the success of the union and its members.
Options and flexibility
Credit unions often exist on a smaller scale than traditional banks. So they don’t always have as many types of accounts or other products and services. Credit cards with perks or rewards, for instance, might not be available from a credit union.
Useful budgeting tools and other technology might not be as easily or readily available at a credit union as they are at a large bank.
Credit unions’ field of membership is often defined by where people live or something else that members have in common. So you may not qualify to join some credit unions.
Credit unions may have fewer brick-and-mortar locations than some banks. Hours of in-person locations might be limited as well. It’s also worth taking stock of the ATM and branch locations and whether the credit union’s online services can make up for any gaps.
Safety and regulation of credit unions
The National Credit Union Administration is the federal agency that regulates and insures deposits in credit unions. It makes sure that if you become a member of a credit union and the union fails, your money is still safe. If you have deposits at a credit union, you can use the NCUA’s insurance estimator to check your coverage.
The Federal Deposit Insurance Corporation regulates and insures deposits in banks.