What is a Credit Union?
Written by: Lisa Phelps for Student Choice
Good question. As the famous song says, let’s start at the very beginning… and keep in mind, this one post only scratches the surface about credit unions – there are tons of great things about credit unions, so the best thing to do is find one in your neighborhood (you can use our CU Select tool) and stop in. Ask any of the tellers or “Member Service Reps” and they’ll be happy to explain the difference to you!
For a fun informational video, click below (posted almost 6 years ago by a Canadian credit union, an oldie but a goody, so to speak). For more info about Young and Free, visit more information, check out http://www.youngfreehq.com/.
Credit Unions Defined – People Before Profits
Here’s a quick definition: Credit unions are not-for-profit organizations owned by their members. Their primary goal is to help the community by helping their members save and borrow. As a rule, credit unions usually offer better savings rates and lower interest rates than banks in an effort to help their members lead financially healthy lives.
Here’s a quick credit union history lesson:
- The first credit union was started in 1849 in Germany by a guy named Friedrich Raiffeisen.
- Canada got its first credit union in 1900.
- New Hampshire was the first state to get a credit union in 1909.
- In 1934, President Roosevelt signed the Federal Credit Union Act, which authorized federally chartered credit unions in all states. The purpose of the Act was to create a system of not-for-profit cooperatives that promote thrift and sound financial practices.
- Today there are roughly 7,000+ credit unions in the USA.
When first formed, credit unions were usually associated with specific companies, offering employees low-cost loans and other basic financial services. Today, many credit unions have expanded their field of membership (which just means how many people it can serve in a company, community, county, state, etc.) to include anyone who lives, worships or works within a certain area, but their original purpose has remained the same.
Are Credit Unions Better than Banks?
Credit unions are similar to banks in that they both offer products and services consumers need to manage their financial lives. But they are very different in terms of their priorities and the way they’re managed. Here are a few of the main differences:
- Credit unions are owned by those that choose to do business there. They are member-owned instead of governed by a Board whose main objective is to make money.
- Credit union profits are returned to members in the form of lower fees and interest rates, while Big Bank profits go to stockholders in the form of dividends.
- Credit unions offer 30,000+ surcharge-free ATMS through a cooperative network, more than any single bank.
- Credit unions may be smaller, more personal, and locally-grown.
Myths about Credit Unions
You may have heard a lot of crazy things about credit unions, but this should set the record straight. Here are a few common myths:
- I can’t join one
Yes you can. Eligibility may be based on where you live, a particular business or profession, college alumni, etc…, but chances are there are probably quite a few you’re eligible to join. (I was able to join my credit union because my son’s employer offered membership to all employees and their families.)
- Branches are inconvenient
Your specific credit union will probably have fewer branches than any of the Big Banks, however, through the Shared Branching Network, you can conduct all of your banking at other member credit unions all across the world so really, and your credit union has thousands of branches.
- My savings aren’t guaranteed by the FDIC
True, but credit unions offer the exact same protection from the NCUA (the National Credit Union Association) – think of NCUA as the credit union version of the FDIC.
- Credit unions are technologically inferior
This might have been true several years ago, but today most credit unions offer all the same bells and whistles, including mobile banking, mobile deposit, and mobile payments – some credit unions are even on the cutting edge, doing things banks haven’t even thought of yet!
- There’s a membership fee
At most credit unions, you simply need to deposit $5 or so in your account. But, if you close the account, you get it all back – so it’s not really a fee.
The Decision is Easy
If all of this isn’t enough to convince you of a credit union’s superiority, check out A Smarter Choice, a website all about credit unions and where to find one near you. It’s a great resource for all your financial questions.