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What Is a Credit Union? | Banking Advice

Key Takeaways

  • Credit unions are member-owned, not-for-profit financial institutions that offer traditional banking services.
  • Compared to banks, credit unions offer lower interest rates on loans and higher rates for checking and savings accounts.
  • Credit union membership isn’t open to everyone. You must meet certain eligibility criteria, which vary depending on the institution’s traditional affiliation. Some credit unions are easier to join than others.

A credit union is a not-for-profit financial institution that returns profits from its financial services to its members, or customers.

Credit unions don’t pay taxes and tend to offer better rates on their financial products. Additionally, as member-based cooperatives, credit unions work to improve the financial well-being of their account holders, sometimes through financial education programs or highlighting better financial products.

Banks are for-profit financial businesses that have shareholders and paid board members that want to see the largest possible financial returns on their investments. That means banks can have structural incentives to offer higher interest rates on loans and lower interest rates on savings accounts.

However, both types of financial institutions offer similar products – to a degree.

Most banks and credit unions will offer at least one option for both checking and savings accounts. Credit unions and banks are also likely to offer loans to buy a home or a car, or to operate a small business. They usually also offer services such as access to an ATM network or digital banking, but credit unions likely won’t offer the same variety or quantity of financial services that a bank might.

Pros and Cons of Credit Unions

Pros

  • Because credit unions are beholden to customers, rather than investors, they might offer you financial education programs or steer you in the direction of financial products that make more sense for your financial situation or goals.

  • Credit unions offer lower interest rates on loans than banks. The reverse is also true: Checking or savings accounts will likely have higher interest rates, putting more passive money in your pocket than you would receive when depositing your money into a bank.

  • Unlike bank customers, members of a credit union vote for their board of directors, meaning you’ll have a direct say in the institution’s governance.

  • Given the community affiliations many credit unions have, they often score higher for in-person customer service.

Cons

  • If you’re not affiliated with a certain group – for instance, federal employees or military members and their families – you might not have access to the credit union with the financial services you want. However, some credit unions will still allow people to join if they join an organization or support a charity, regardless of eligibility to the institution’s usual criteria.

  • Depending on its size, a credit union might not have an extensive ATM network for you to tap into for withdrawals or deposits. But some credit unions will reimburse any or a certain number of fees you incur at an out-of-network ATM. A credit union might also be part of a shared-branch network.

  • A regional or local credit union will also likely have fewer walk-in locations than any banks in your area.

While credit unions are more concerned with maximizing benefits for their customers than banks are, that doesn’t mean someone can sign up to join any credit union in which they’re interested.

Potential new credit union members must meet certain eligibility criteria, which vary depending on the institution’s traditional affiliation. A credit union for a specific branch of federal government employees, for example, would likely extend membership only to current or past employees and their families.

Some possible associative criteria for credit union membership include:

  • Employees of a specific business, school system or government agency
  • Members of a particular faith or denomination
  • Residents of a certain town, county or region
  • Members of a labor union
  • Family members of an eligible person

How Can I See What Credit Unions I May Be Eligible For?

The National Credit Union Administration is the independent federal agency that charters credit unions. It operates a search tool you can use to locate credit unions in your area. That same database will allow you to find basic information about a credit union, including membership criteria, total assets and how many members it has. It also allows you to request a credit union’s financial performance report, which includes information such as the total number of loans it has issued and its total compensation for employees.

Will My Money Be Safe in a Credit Union?

A federal insurance fund supported by the NCUA insures the deposits of credit union members up to $250,000, just like the FDIC does for banks. The NCUA supervises and regulates federal credit unions. When a credit union is liquidated or shut down, the NCUA manages the process.

Accounts covered by NCUA insurance include:

  • Regular shares (similar to savings accounts)
  • Share drafts (similar to checking accounts)
  • Money market accounts
  • Share certificates (like certificates of deposit at banks)
  • Traditional and Roth IRAs
  • KEOGH retirement accounts
  • Revocable trust accounts
  • Irrevocable trust accounts

Items not insured by the NCUA include:

  • Mutual fund investments
  • Stocks
  • Bonds
  • Life insurance policies
  • Annuities

The first credit unions were established in Germany in the 1850s and 1860s. Massachusetts legislators tried – and failed – to allow credit unions to incorporate in 1871. In 1908 the first credit union in the United States opened its doors in Manchester, New Hampshire, known then as The People’s Bank and now called St. Mary’s Bank.

President Franklin D. Roosevelt signed federal credit union legislation into law in 1934, allowing credit unions to be chartered under either federal or state law.

According to the NCUA, there were more than 4,600 federally insured credit unions in the U.S. as of September 2023, with insured shares and deposits totaling $1.72 trillion.

Biggest U.S. Credit Unions

These are the five largest credit unions in terms of consolidated assets, according to the NCUA’s September 2023 data:

  1. Navy Federal Credit Union – $170.1 billion in assets
  2. State Employees’ Credit Union – $54.6 billion in assets
  3. PenFed Credit Union – $34.8 billion in assets
  4. Boeing Employees Credit Union – $29.9 billion in assets
  5. SchoolsFirst Federal Credit Union – $29.2 billion in assets

Sarah Goldberg
Sarah Goldberg

Sarah is a seasoned financial market expert with a decade of experience. She's known for her analytical skills, attention to detail, and ability to communicate complex financial concepts. She holds a Bachelor's degree in Finance, is a licensed financial advisor, and enjoys reading and traveling in her free time.

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