What is a Credit Union? A Look at the Benefits of Membership

A credit union is a cooperative organization that provides banking services, including deposit accounts, credit cards, and loans to its members. Similar to many other types of cooperatives, credit unions are member-owned and not-for-profit. 

Most credit unions are relatively small and locally focused. However, some are regional, national, or even global, with members in multiple states or countries. In this article, we’ll examine what differentiates credit unions from banks and how to join one.

Credit unions are similar to traditional banks and other companies offering financial services but differ in a few ways. One difference is that credit unions are owned and managed by members rather than corporate directors and officers. 

Purpose and Mission

Credit unions must operate in a financially sound manner, but they aren’t driven primarily by profit motives, as banks typically are.

Credit union directors are elected by credit union members or shareowners, not corporate shareholders. These directors may delegate some of their management tasks to professionals or volunteers, but they also typically have dedicated responsibilities.

These responsibilities may include determining a strategic direction, establishing membership criteria, setting rates and fees, approving budgets, and ensuring proper financial controls are used to safeguard the credit union’s funds.

Some credit unions pay their board members; others require them to be volunteers. 

Credit Unions vs. Banks

Banks and credit unions take different approaches to helping people manage and grow their finances. This chart highlights some significant aspects that distinguish each.

Similar to banks, credit unions may be regulated by federal and state agencies; however, the agencies may differ for banks and credit unions. This paradigm also applies to deposit insurance. Both banks and credit unions offer it, but most bank deposits are insured by the Federal Deposit Insurance Corp. (FDIC).

Credit union deposits are typically insured by the National Credit Union Administration (NCUA).

Membership Structure

Historically, credit unions limited their membership to people with common characteristics. These may have included living in the same community, being employed at the same company or industry, or being a member of the same church, labor union, homeowner’s association, or other group.

While these credit union membership criteria still exist, they’re less common. Many credit unions are open to just about anyone, and many of those with membership criteria allow their members’ family members to join as well.

Not-For-Profit Status

Because of their not-for-profit status, credit unions return their profits to their members. These returns come in the form of higher rates for savings, lower fees for various services, and lower rates for loans than those traditional banks and lenders offer their customers.

Another difference between credit unions and banks is that credit unions are exempt from federal taxes. This tax exemption is so valuable to credit unions that preserving it is the top priority of America’s Credit Unions (ACU), a trade group that represents credit unions in the U.S.

On its website, the ACU says taxing credit unions would harm their members because the organizations would have to offer lower rates for savings accounts and charge higher fees and rates for loans, among other consequences.

Credit unions offer some significant benefits compared to banks. At the top of the list may be better rates for savings and borrowing. 

Lower Fees and Better Rates

An S&P Global Market Intelligence survey of deposit institutions found that at the end of Q1 2024, credit unions offered higher rates, on average, for certificates of deposit (CDs) and money market accounts (MMAs) and lower rates, on average, for mortgages, home equity loans and lines of credit, and auto loans for both new and used vehicles. Credit union rates were also typically lower than bank rates for regular and interest-bearing checking accounts.

Credit unions also may charge less and allow lower minimum balances to open or maintain a savings or checking account. Some credit unions allow members to open a savings account with an initial deposit of just $1.

Rates and fees for specific financial products from banks and credit unions can and do differ from the national averages and may be significantly higher or lower. Consumers should shop around and compare rates and fees before they choose loans or accounts from any financial institution.

Personalized Service and Local Impact

Credit unions have a reputation for offering their members more personalized service than bank customers typically receive. 

Credit unions are also perceived as more supportive of their local communities and offer more community-based programs, such as school-based branches, grants for nonprofit or charitable organizations, or student scholarship programs.

Like banks, many credit unions have branch locations in addition to a primary office. The largest credit unions have hundreds of branches in multiple states or countries or dozens of branches in one or more states. 

Other credit unions may have only a few branches. Some modern credit unions have no branches; instead, they connect with their members online.

Most credit unions offer a wide variety of financial products and services. These typically include deposit accounts, loans, and credit cards. However, institutions may also provide insurance, investment and retirement products, and estate planning services.

Accounts and Credit-Builder Loans

Credit unions are trusted sources for deposit accounts. Most offer checking and savings accounts for adults and youth accounts for minors. These accounts can help children learn financial responsibility under the guidance of their parents.

Credit-builder loans are another common tool credit unions offer members — especially those with bad or no credit history. These loans allow members to take out a loan and deposit payments into a savings account to establish a good payment history. The key to this loan is that the loan funds aren’t released until after the loan is paid.

The National Credit Union Share Insurance Fund (NCUSIF), operated by NCUA, insures almost all deposits at U.S. credit unions.

Credit union loan products may include auto loans, mortgages, home equity loans or lines of credit, and personal loans. Some credit unions also offer salary advance loans and loans with flexible repayment terms. 

Credit Cards and Business Products

Many credit unions offer financial products and services for businesses and individuals. Business accounts and services may include deposit accounts, credit cards, loans, investment accounts, and business fraud-monitoring services.

Most credit unions also offer robust financial education resources. Institutions aim to teach members about savings and credit through workshops, counseling services, and interactive tools.

Before you find and choose a credit union, consider which banking products, services, and benefits are most important to you. The application process is fairly straightforward, and membership is often more accessible.

Identify Your Preferences

Before joining a credit union, you should review your financial situation and weigh the benefits of making the move. Here are some questions to ask:

• Do you want a credit union with physical branches for in-person banking, or would you be happier with an online-only credit union? If you want branches, where do they need to be located to meet your needs for safety and convenience?
• Do you need access to ATMs to make deposits or withdrawals from your accounts? Many credit unions belong to ATM networks that allow members to use other credit union ATMs besides their own.
• Do you need checking and savings accounts, a credit or debit card, a home loan, an auto loan, or a personal loan? Make a checklist of your financial wants and needs.
• Do you want to join a credit union that’s active in your community or supports a cause you care about, or is this not important to you?

Once you identified your needs and desires, it’s time to research which credit unions you can join and what they offer. The U.S. is home to approximately 4,570 federally insured credit unions with more than 140 million members collectively. About 700 had assets of more than $500 million; the others were smaller organizations. 

You can search online or visit one or more credit unions in your area and ask to speak with someone who can answer your questions about membership. Be sure to determine whether you’re eligible to become a member based on your employment, group affiliations, family relationships, or other criteria.

The Application Process

Applying for membership is usually fast and easy. You must complete an application online or in person at a branch and provide some personal information, such as your full name, date of birth, address, phone number, and Social Security number. You will also need a copy of your driver’s license, passport, or other government-issued identification. 

You may also need proof of your eligibility, such as a school transcript or a pay stub from your employer. If your application is approved, you pay a one-time fee to purchase a share in the credit union and establish yourself as a member. These initiation fees are usually modest, $5 to $25. 

Then, you must make an initial deposit into your checking or savings account. You may need to maintain a minimum balance in that account to access special deposit rates.

Once your account is open, you should review the disclosures, including the fee schedule, privacy policy, and, for checking accounts, the overdraft policy.

Credit unions have a lot to offer as an alternative to traditional banks. They offer deposit accounts, loans, and many beneficial financial products and services. By their nature, credit unions can also provide better rates, fewer or lower fees, and more personalized service for members. 

While membership may be restricted, credit unions are easy to join, and most people can find one or more institutions where they’re eligible. Credit unions are an excellent financial choice for many consumers looking to build their financial profile through accessible products, lower rates, and valuable educational resources.