Credit Unions

Credit unions function just like banks do, but they're non-profit organizations that are owned and operated by their members, for their members.

Because they don't take profits, they frequently offer better interest rates, lower fees, and better terms on loans. Membership, however, is usually limited to members of a specific community or organization.

What is a Credit Union?

The purpose of a credit union is to offer banking services to its members. Just like a bank, it takes deposits, pays interest, and makes loans. Unlike banks, though, credit unions are owned and operated by their members.

Once you open an account at a credit union, you become a member. Every member of a credit union gets a single vote in choosing its leadership, regardless of their financial standing or the size of their account. Membership is frequently restricted, though, to a particular employer, like a local university or hospital, or members of a particular organization, like the military or a trade union.

Is a Credit Union Right for Me?

Credit unions have advantages and disadvantages when compared to traditional banks, and you should take the time to compare and contrast your options before making a decision.

The advantages of a credit union come from the fact that its purpose is to serve its members and not to turn a profit. This usually means better interest rates, terms on loans and lower fees and account minimums, in addition to the right to have a say in how your financial institution is run.

The disadvantages, though, come from the fact that credit unions offer a smaller selection of services and products to depositors, meaning there can be a lot more options for different types of credit cards and accounts with a traditional bank. What’s more, traditional banks typically have more branch locations and ATMs, frequently offering more convenience to account holders.

Local Credit Unions


Many credit unions have geographically defined membership, like a particular city or region. These credit unions offer up membership on the basis of residence and cover anyone living in the area interested in becoming a member.


Other Types of Credit Unions

With total credit union membership in the United States well over 110 million, there are a variety of different options for signing on with a credit union. If you think that a credit union is the right choice for your banking needs, be sure to take the time to explore your options.

Employer Credit Unions

Employer credit unions accept members from a specific employer or occupation along with their families. Some common examples being a university, school district or police department, but a diverse range of professions have opened credit unions to serve their co-workers.

Group Credit Unions

Credit unions are also organized around a particular group or organization, with the most common example being military groups or trade associations. For instance, the Navy Federal Credit Union is open to membership for all members of the U.S. military and their families.

Even if you’re not a part of any of these sorts of organizations, you may still have options for joining a credit union. Some federal credit unions offer membership to any American citizen over the age of 18.

Federal Credit Unions

Another important difference in credit unions is whether they are federally chartered or not. Federally-chartered credit unions are members of National Credit Union Administration (NCUA), which offers deposit insurance in the form of the National Credit Union Share Insurance Fund (NCUSIF).

This is not the same as the FDIC, but they function in essentially the same way, with deposits insured up to $250,000 for each account and the fund backed by the U.S. Treasury.

State-Chartered Credit Unions

State-chartered credit unions are those not insured by the NCUSIF. This does not mean that their deposits aren’t insured, simply that they typically rely on private insurers. That said, they don’t have the backing of the full faith and credit of the United States, which could make a difference for you, so consider carefully how important the type of deposit insurance on your account is to you.

About the Author

Joel Anderson is a business writer with over a decade of experience writing about the wide world of finance. Based in Los Angeles, he specializes in writing about the financial markets, stocks, macroeconomic concepts and most broad financial topics with an eye toward instructional writing for the investing outsider.

Joel Anderson holds shares in Walmart, Verizon, AT&T, the Guggenheim Solar ETF, the United States Oil ETF and the Vanguard Total Stock Market Index Fund.