What is a credit union?

In many ways, credit unions function like banks, offering financial services such as checking accounts and loans. But credit unions are nonprofit institutions and member-owned, often by groups of people who have something in common.

Learn more about credit unions, including how they work and what it means to have a membership.

What you’ll learn:

• 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.

• Credit unions may have specific requirements for membership, such as location or employment.

Credit unions 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. Making a deposit is typically thought of as buying “shares” in the credit union: Anyone with an account is a member and an owner.

A key difference between credit unions and banks is that credit unions are not-for-profit. They do 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 through lower fees, competitive interest rates and potentially higher savings rates.

Credit unions typically have specific membership requirements. For example, you might have to live in a particular community or be employed by a certain organization or business.

The potential advantages and disadvantages of credit unions can vary depending on your needs and each individual credit union. Here are some things to consider.

Credit unions may offer low- or no-fee accounts and competitive rates on student loans, car loans, mortgages and other types of debt.

Credit unions often exist on a smaller scale than traditional banks. So they don’t always offer as many types of accounts or other products and services. For example, they may have fewer rewards credit cards.

Typically, credit union membership is defined by where you live or something else that members have in common. So you may not qualify to join some credit unions. Opening hours at in-person locations and ATM availability might be limited too.

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.

Just as banks are backed by a federal agency, the Federal Deposit Insurance Corp. (FDIC), credit unions are regulated and insured by the National Credit Union Administration (NCUA). That means your money is still safe if the credit union fails.

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 invested in the union’s success and its members’ well-being.

Credit unions are member-focused financial institutions that may offer competitive rates and low fees. They’re an alternative to a bank, but they may not have as many products and services to choose from. 

If you’re looking for a credit card that offers rewards, you might want to consider one from Capital One. You can explore your options and see if you’re pre-approved without impacting your credit score.