 What Is a Credit Union?
A credit union is a financial cooperative where all accountholders are members of the organization. All the money pooled among the credit union's members provides the operating cash flow used to facilitate the credit union's financial services.
These financial services are the same as what banks offer: checking accounts, savings accounts, mortgages, personal loans, and other financial services. One of the key differences is that all members of a credit union must meet specific eligibility requirements for membership. Membership requirements, referred to as a "common bond," vary from one institution to the next.
Are Credit Unions Non-Profit?
While non-profit organizations are operated as a business, they are typically designed as charitable missions and aren't meant to generate profits that support any of its individual members. Credit unions actually operate as not-for-profit organizations, which means that they're formed out of a common interest—hence the membership requirement—and do not intend to generate profits from their business activities.
To maintain tax-exempt status, credit unions must reinvest profits into their member services. This is how credit unions can offer lower interest rates, better savings rates, reduced fees, and other beneficial services to their customers.
Because credit unions aren't under pressure to continue growing profits, they can focus on providing excellent service to their members without concern that slim profit margins might lower their stock value or frustrate stakeholders.
Who Owns Credit Unions?
In a credit union, the members themselves are the owners. Each member is an owner upon joining the credit union.
How Many Credit Unions are In the U.S.?
As of February 2021, there were 6,293 credit unions in operation across the United States. Over the past five years, the number of credit unions has grown by an average of 2.7 percent per year.
What's the Difference Between a Credit Union and a Bank?
While the not-for-profit business model and member-owner approach is the main structural difference between banks and credit unions, customers and members will also notice differences in their banking experience. As a customer, for example, you're likely to get better terms on savings accounts, loans, and other financial services obtained through a credit union, since profits aren't the main focal point.
Credit unions also create a strong local presence, so any credit union you join will have local branches and ATMs in your community. Although credit unions may have historically lagged behind traditional banks in their mobile banking services, today's credit unions have closed that gap and now offer the same convenient services you expect from any financial institution.
How Do Credit Unions Make Money?
As not-for-profit organizations, credit unions are focused on minimizing fees and loan interest rates for their clients, while maximizing the types and quality of services offered. But credit unions do still generate revenue through interest, fees, and other financial products sold to members.
In that sense, credit unions make money in the same way as traditional banks —but their profit margins aren't as large due to their not-for-profit business model.
What Are the Benefits of a Credit Union?
As a member-owner of a credit union, your banking experience comes with benefits that offer flexibility, value, and a customer-centric approach. If you're still asking, "Why join a credit union?" here are some important benefits to keep in mind:
- Pay less on interest and fees. Loan interest rates and fees at credit unions are reduced to maximize value for members, which means you'll end up paying less for the same products offered through a traditional bank.
- Grow savings faster through savings and money market accounts. With higher savings interest rates than traditional banks typically offer, members enjoy larger dividend payments that build upon their savings success.
- Enjoy access to free financial education resources. Credit unions prioritize financial literacy and education, and members can take advantage of a wide range of resources, as well as the expert customer service and personalized attention of working directly with a credit union representative.
- Keep your money in the local community. Rather than keeping your money with a large for-profit bank, credit unions are a great way to keep your money local and invested in your community—which can pay you back through a stronger local economy.
- Enjoy flexible banking services, including online and mobile banking. Services like online bill pay, mobile check deposit, and other online services are widely available at many credit unions.
This is just the start of the benefits that come with joining a credit union. To discover all the benefits you can start enjoying today—visit or contact a local credit union to learn more about the value of membership.
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