What Is a Credit Union?

What Is a Credit Union?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

A credit union is essentially a type of financial cooperative where the members can borrow from pooled deposits at generally low interest rates. It is similar to a traditional bank but has a different structure because its primary purpose is to provide a service to its members rather than maximizing profits for shareholders.

Related Questions

1. How are credit unions different from banks?

In essence, credit unions, being member-owned and operated, tend to focus on providing personalized services to their members. These institutions give their profits back to their members in the form of lower fees, higher savings rates and lower loan rates unlike banks that aim to maximize profits for shareholders.

2. How does one become a member of a credit union?

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You can become a member of a credit union by meeting certain eligibility requirements, often based on the area you live in, your employer, a family member’s eligibility, or your membership to a certain group. Once you find a credit union you’re eligible for, you usually need to open and maintain a savings account there to establish your membership.

3. Are funds deposited in credit unions safe?

Yes. Similar to banks, deposits in credit unions are insured. Most credit unions are insured by the National Credit Union Administration which provides a level of safety to the funds deposited, just like the way the Federal Deposit Insurance Corporation (FDIC) does for banks.

4. What type of services do credit unions provide?

Credit unions offer a variety of financial services including checking and savings accounts, loans such as personal loans, auto loans, and mortgages, credit cards, online and mobile banking and more. The services offered can vary from one credit union to another.

5. What are the advantages of credit unions?

A key advantage of credit unions is their member-focused approach. Credit unions generally offer competitive rates, lower fees, and more personalized service than other larger more commercial banks. As they are not-for-profit organizations, their aim is to serve their members in the best possible way rather than maximizing profits.