A credit union is a not-for-profit organization formed for the benefit of its members. This differs from a charity in that although it is tax exempt it is required to make a small surplus. Income from loans and investments must be greater than expenses and costs and member dividends in order to continue operating. A credit union is different from a bank or traditional savings institution in that the members are not just customers but are the owners, receiving all the profits of the organization as regular dividends on their savings shares. You must be a member to transact business at a credit union. Other financial institutions are owned by stockholders who may or may not conduct business with the institution.
According to Investopedia a federal credit union differs from other credit unions because deposits are insured by the federal government for up to $250,000 per investor/member. Government deposit guarantees are similar to bank account insurance through the FDIC equivalent for credit unions, the National Credit Union Share Insurance Fund. Federally chartered credit unions are governed by the National Credit Union Administration. 98% of credit unions in the United States are designated as federal. This can be determined by the use of ‘federal’ in the name, a NCUA insurance sign at its place of business or on its website, or any credit union with its main headquarters in the following states: Arkansas, Delaware, South Dakota, Wyoming or Washington, D.C.
All credit unions offer banking services including checking and savings accounts, money market accounts, certificates of deposit, personal & business loans, auto loans and other financial tools. Credit Unions are known for offering lower interest rate loans at more favorable terms than a typical bank. Credit unions have their members as their primary interest and offer free seminars, presentations and informational brochures to educate members on loans, home ownership and retirement options.
You may join a credit union if you meet the criteria set forth for membership. There are credit unions for all the branches of the military, for police, fire departments, for teachers, students and employees of school districts or even for residents of a town or industry, or as an employee of certain businesses. Eligibility is set by each credit union at inception but may be expanded by a vote of members. You may join a credit union by meeting any of the particular membership eligibility criteria or being a family member of an eligible member. Most credit unions are very liberal with membership qualifications adding any residents of the city where they have offices an opportunity for membership.
Other interesting facts from Wikipedia about credit unions:
- President Roosevelt signed the Credit Union Act in 1934 during the Great Depression to promote thrift and prevent run away interest rates
- By offering very competitive savings rates, low fees and lower cost loans credit unions help keep traditional bank loan rates lower.
- Once a member, always a member. As long as you maintain even a modest account balance you will remain a member of a credit union whether you move or your original membership eligibility changes.