Credit Union
Definition
A credit union is a member-owned financial cooperative that provides traditional banking products and services, such deposits, loans, and credit cards.
Detailed Explanation
Credit unions are not-for-profit organizations that operate primarily to serve their members rather than to maximize corporate profits. Members of a credit union share a common bond, such as working in the same industry, living in the same community, or belonging to a specific group. This mutual bond allows credit unions to provide financial services including savings and checking accounts, loans, and other financial products at more favorable rates.
Unlike banks, any profits generated by a credit union are returned to members in the form of reduced fees, lower interest rates on loans, and higher interest on deposits. Credit unions are governed by a board of directors, elected by the members themselves. They are known for their strong customer service and community involvement, often tailoring their offerings to meet the specific needs of the members within their charter.
In the United States, credit unions are insured by the National Credit Union Administration (NCUA), providing the same level of security for deposits as the FDIC provides for banks.
Example
Maria joins a local credit union because it offers higher interest rates on savings accounts and lower loan rates. As a member, she votes in the annual election of board members and enjoys reduced fees on her transactions.
Key Articles Related To Credit Unions
Related Terms
Dividends: Profits paid out to members of a cooperative, such as a credit union, based on their usage of the union’s services.
Credit Union Member: An individual who owns a share and holds an account with a credit union, giving them voting rights and eligibility for better rates on deposits and loans.
Not-for-Profit: An organization that uses its surplus revenues to further achieve its purpose or mission, rather than distributing its income to the organization’s leaders or shareholders.
Share Account: A type of savings account in a credit union where the deposits made by members are considered as shares in the cooperative.
FAQs
How can I join a credit union?
To join a credit union, you must meet the membership criteria, which usually involves sharing a common bond with other members, such as living in a certain area or working at a specific employer.
What are the benefits of using a credit union over a traditional bank?
Many credit unions offer lower interest rates on loans, higher rates on savings, lower fees, and more personalized customer service due to their member-focused structure.
Are funds deposited in a credit union safe?
Yes, funds in a credit union are safe; they are insured up to $250,000 per depositor by the National Credit Union Share Insurance Fund (NCUSIF), similar to FDIC insurance for banks.
Editor: Colin Graves