Different Types of Credit Unions

Here are the differences among federal, employer, group and local credit unions.

Becoming a member of a credit union versus a bank affords many different benefits. Depending on your employer, community, church or other organizations you are involved with, there might be a variety of global credit unions, national credit unions or local credit unions that you can choose from. Learn the differences among the different types of credit unions so you can find the best credit union for your financial needs.

Read: 10 Best Credit Unions Anyone Can Join

What is a credit union?

A credit union is a not-for-profit financial establishment that is owned by its members. Similar to banks, credit unions accept deposits, issue loans and offer a variety of other financial services. But unlike a bank, a credit union is a not-for-profit organization that is not federally taxed, and is funded and managed by its members.

What this means is that each member of a credit union is an equal owner. Credit union members vote on board members who voluntarily and democratically govern the credit union. And because credit unions are not-for-profit, they return profits back to members.

Profits from credit unions are generally returned in three forms:

  • Reduced fees
  • Higher savings rates
  • Lower loan rates

Credit unions offer a cooperative structure designed to mutually assist members in their financial goals. For example, one credit union member’s savings deposit can become another member’s loan. However, to cash in on these great features, you will have to meet special qualifications — which vary by credit union — to become a member.

See Also: Advantages and Disadvantages of Credit Unions

Credit Union Membership

Individuals qualify for certain credit unions based on common bonds — what the National Credit Union Administration calls “fields of membership.” Your eligibility to join a credit union can depend on a few common factors:

  • Your employer: Many employers sponsor their own credit unions, so if you work for a company or organization with its own credit union, you could be eligible to join as an employee.
  • Your family: The majority of credit unions allow its members’ families to join.
  • Your geographic location: Many credit unions serve people that live, work, worship or attend school in a specified geographic area.
  • Your membership in a group: Membership in a group or association such as a school, labor union, homeowners’ association or place of worship could make you eligible to join a credit union.

Types of Credit Unions

The NCUA divides credit union types into two categories: federal credit unions and federally insured state credit unions. All federal credit unions are regulated by the NCUA and insured by the National Credit Union Share Insurance Fund. The NCUSIF also covers federally insured state credit unions.

However, there are other credit unions that fall outside these categories. One example is state-charted credit unions that are privately insured. Private insurers still cover credit union deposits, but unlike federally insured unions, private insurance is not backed by the full faith and credit of the U.S. government.

The NCUA further breaks down credit unions by field-of-membership type. Here are the NCUA’s categories for types of fields of membership:

  • Community credit unions
  • Associational credit unions, including faith-based or fraternal groups
  • Educational credit unions
  • Military credit unions
  • Federal, state and local government credit unions
  • Manufacturing industry credit unions for industries such as chemicals and machinery
  • Service industry credit unions for industries such as finance, health care and transportation
  • Corporate credit unions
  • Multiple common bond credit unions
  • Non-federal credit unions

Read: NCUA vs. FDIC: Who Insures Credit Unions and Banks?

4 Main Types of Credit Unions

Keeping track of all the different types of credit unions can be confusing. To keep it simple, you can think of credit unions as falling into four general types:

  • Employer credit unions
  • Group credit unions
  • Local credit unions
  • Federal credit unions

Employer Credit Unions

Employers often sponsor credit unions for their employees. Employee credit unions can represent workers from a diverse range of fields.

People in the following professions and those in other, similar groups often have their own credit unions:

  • Police officers
  • Firemen
  • Teachers
  • Postal employees
  • Transit workers
  • Government workers

Group Credit Unions

Some churches and other groups such as fraternal organizations also have credit unions. Similar to employer credit unions, you must be a member of the specific organization in order to open an account at their credit union. Examples of group credit unions include associational credit unions and military credit unions.

Local Credit Unions

Organizations, activities and job titles aren’t the only things that determine who is represented through a credit union, though. Credit unions exist for residents of certain cities, as well. One example of a community credit union is Greylock Federal Credit Union, which draws its members from people living in specific locations in Massachusetts.

Federal Credit Unions

The Federal Credit Union Act of 1934 authorized the formation of credit unions in the United States. The law was designed to make credit more widely available to Americans via nonprofit credit unions. Some national credit unions allow you to join online, and only require you to be over 18 years old and a U.S. citizen or permanent resident.

Read: How to Know If Your Bank Is Giving You a Good Deal

Is your credit union federally insured?

Once you meet the requirements for the credit union you choose to join, it’s important to know whether or not it’s federally insured.

Just as banks have the choice to insure their accounts with the Federal Deposit Insurance Corporation (FDIC), credit unions can either be federally insured or not through the NCUSIF, which is managed by the NCUA. The NCUSIF can insure up to $250,000; as long as your bank account doesn’t exceed that amount, your money is as safe in a federally insured credit union as it is in a federally insured bank.

Kim Bui contributed to the reporting for this article.