What exactly is a credit union? What are the benefits of a credit union? Learn the answers to these questions plus others in this quick look at the basics of credit unions.
First of all, what is a credit union? It is a not for profit financial institution that is owned and governed by its members, through a board of directors.
The primary difference between a credit union and a conventional bank is ownership and control. Specifically, the fact that credit unions are owned and controlled by their members, whereas conventional banks are usually owned by stockholders.
Since credit unions are run not for profit and owned by their members, they have historically offered better interest rates to their members – all profit can be re-invested to the members, rather than raising stock prices, as a conventional bank would do. So, often times you can get better interest rates on savings accounts and lower interest rates on loans through a credit union, when compared to a conventional bank.
Not everyone qualifies to join every credit union, though. Regulations require that a credit union restrict its members to a specific demographic group. For example, a credit union might service only people who work at a particular company, or are members of a specific organization. However, most credit unions will allow a member to always remain a member, even if they no longer qualify for a membership.
In the United States, a credit union may be chartered through the National Credit Union Administration (NCUA) or in some cases, under the authority of the state. Unions chartered through the NCUA will have Federal Credit Union in their name, and are insured through the National Credit Union Share Insurance Fund (NCUSIF). Credit Unions chartered under the state government may be insured through the NCUSIF or through a private insurer.
Credit Unions are actually used most in Canada, where over one third of the population is a member of one.