What Is a Credit Union?

Thinking about where to keep your money? Credit unions provide an alternative to traditional banks, typically offering better rates on loans and deposit accounts.

Here we will guide you through the fundamentals of credit unions, including how they’re different from other financial institutions and how you can become a member.

What is a credit union?

A credit union is a not-for-profit financial institution that, like a bank, offers a wide range of products and financial services. Unlike banks, which are typically owned by shareholders, credit unions are owned and managed by the people who use their services — their members.

The products offered at a credit union include checking and savings accounts as well as share certificates, the credit union equivalent of a certificate of deposit. For borrowing needs, credit unions also provide credit cards and various types of loans, such as mortgages, auto loans and personal loans.

Credit unions vs. banks

Credit unions and banks offer similar services, but because credit unions are not-for-profit, they often return profits to their members in the form of lower interest rates on loans and higher annual percentage yields (APYs) on interest-earning accounts.

It’s also important to note that credit unions are often formed by people with a common bond, such as those living in the same community or belonging to a shared organization. This means credit unions overall are very community-oriented, as opposed to banks, which can be much more far-reaching.

Other key differences between banks and credit unions include:

• Branch access: Banks often have a larger network of branches and ATMs nationwide. Credit union branch and ATM networks can be smaller, though many participate in shared branching networks for wider access.
• Deposit insurance: Both credit unions and banks offer insurance on deposits up to a certain dollar amount, but the entities that insure them are different. Banks are typically insured by the Federal Deposit Insurance Corporation (FDIC), while credit unions are insured by the National Credit Union Administration (NCUA).
• Membership requirements: In most cases, banks are open to anyone. By comparison, credit unions tend to have strict requirements you’ll need to meet in order to become a member. This might include where you live, work or form an affiliation with a specific group.
• Fewer product options: Credit unions, particularly the smaller ones, may not offer as much of a variety of financial products and services as banks do. They also may have fewer tech and mobile services.

Pros and cons of credit unions

How to join a credit union

Becoming a credit union member begins with understanding eligibility requirements. Unlike banks, which are generally open to the public, credit unions set specific criteria for membership.

Membership requirements vary between credit unions, but might include:

• Location: Many credit unions serve individuals who live, work or worship in a specific geographic area, such as a particular city, county or state.
• Employment: Some credit unions are associated with specific companies or industries. If you work for a qualifying employer, you and your family members may be eligible to join.
• Affiliation: You might be able to join a credit union if you belong to a particular organization, such as a union, alumni association or religious group.
• Family: If a family member is already a member of a credit union, their immediate family members (such as parents, children, siblings or a spouse) may also be eligible to join.

You can usually find membership requirements specifically stated on a credit union’s website. Once you determine if you meet the eligibility criteria, the process of joining a credit union is relatively straightforward. You’ll typically need to fill out an application and provide some personal information, including your address, date of birth and Social Security number.

You’ll also typically need to deposit a small amount of money into a savings account. This deposit represents your ownership stake in the credit union, officially making you a member. As a member, you often have the right to vote in elections for the board of directors, the governing body that oversees the credit union’s operations.

Frequently asked questions

What is the difference between a bank and a credit union?

Though banks and credit unions offer similar financial services, credit unions tend to serve their members with lower fees, better rates and a commitment to community. However, you’ll need to meet certain criteria to become a member.

Can anyone join a credit union?

While banks are generally open to anyone, credit unions serve specific communities. A federal credit union is member-owned and controlled, and each credit union sets its own membership criteria. Membership may be limited based on where you live, where you work or your affiliation with a specific group.

Are credit unions insured by the FDIC?

Unlike banks, credit unions are not insured by the FDIC. Instead, federally insured credit unions are regulated and protected by the National Credit Union Administration (NCUA), and state-chartered credit unions are often insured by private deposit insurance. Check with your credit union to find out how your deposits are protected.