What Is a Credit Union?

Credit unions are not-for-profit financial institutions that offer financial services and products to members who are their customers. Although credit unions provide services similar to banks, they are fundamentally different financial institutions.

For starters, credit unions are member-owned, while banks are privately owned by investors who may or may not be customers of the bank. They operate differently, serve different types of customers and are regulated by different organizations.

Learn more about credit unions to decide whether one might meet your financial needs.

What is a credit union?

A credit union is a not-for-profit financial institution that offers financial products and services to its members or clients, including:

• Checking and savings accounts
• Share certificates, the credit union version of certificates of deposit (CDs)
• Credit cards
• Personal loans
• Mortgages
• Online and mobile banking
• Direct deposits

Credit unions are formed by people with a "common bond," such as those living in the same community or belonging to a shared organization. This makes these institutions very community-oriented.

Credit unions are like close-knit communities, while banks are far-reaching. When you join a credit union, you're joining a small ecosystem where one customer’s deposit becomes another customer’s loan.

Who owns a credit union?

You do if you’re a member. Credit unions are member-owned, meaning those who use their services control the direction of the credit union. Each member gets one vote, regardless of how much money they've deposited.

Members elect a board of directors to manage the credit union. Most of these individuals work on a volunteer basis, with only one board member eligible for compensation. The board and any other members who volunteer their services must act in the best interest of all members.

Most credit unions' primary mission is to provide their members access to more equitable banking services. They achieve this partly by being not-for-profit financial institutions. Any profits a credit union earns are returned to its members through lower fees and loan rates, or higher savings rates.

How are credit unions different from banks?

While they may offer many of the same products and services, there are key differences between credit unions and banks.

• Business structure: The biggest difference between credit unions and banks is their structure. Banks are for-profit institutions whose managing members are paid for their services, while credit unions are not-for-profit organizations managed primarily by volunteer members.
• Ownership: Credit unions are owned by their members, who are also their customers, while banks are privately owned by investors who may or may not be customers.
• Membership requirements: Credit unions are available only to their members, who must meet certain criteria to join. Banks are open to the public with no membership requirements.
• Products offered: Credit unions and banks offer many of the same products and services, although banks may offer a wider range. All credit unions offer savings accounts, but smaller credit unions may not provide additional products. Both credit unions and banks typically offer online and mobile banking.
• Rates and fees: Credit unions often offer their members better rates, terms and fees than banks. However, this is not always the case for all products.
• Branch access: Credit unions typically have branches only in the areas they serve, while banks can be nationwide.
• Regulation and insurance: Credit unions are regulated by either the state in which they are chartered or the National Credit Union Administration (NCUA), which also insures customer deposits up to $250,000 against credit union failure. Banks are regulated and insured by the Federal Deposit Insurance Corp. (FDIC), which also protects customer accounts up to $250,000.

Credit unions can be state or federal organizations. The difference lies in which government granted the credit union charter. State credit unions are organized under a state charter, while federal credit unions operate under a federal charter.

Both types of credit unions can qualify for NCUA coverage. The main distinction for members is where they can seek regulatory help.

If your credit union is state-chartered, you'll want to contact your state regulator. Concerns regarding a federal credit union should be addressed through the NCUA.

Credit unions vs. banks at a glance

Here is a quick overview of the key differences between credit unions and banks.

How do credit unions compare with banks?

How to join a credit union

Membership requirements limit who is eligible to join a credit union and use its services. These requirements often center around location, occupation or a particular group.

You may be eligible to join a credit union in several ways because of your:

• Employer: Employers may sponsor credit unions for their employees.
• Location: Credit unions may be open to anyone who lives, works, worships or attends school in a particular area.
• Group: You may qualify for a credit union membership by being a member of a specific group, such as a place of worship, school, homeowners' association or labor union.
• Family: Sometimes, all you need to join a credit union is to be related to someone who is already a member.

There may also be a nominal membership fee, typically between $5 and $25. Some credit unions may also charge a processing fee for opening an account.

Pros and cons of credit unions

Credit unions have many advantages over banks but also some key drawbacks. When deciding which to use, consider the following pros and cons of credit unions.