What is a credit union?
Credit unions are not-for-profit cooperative financial institutions owned by their members. They offer the same services as banks, but the profit is returned to members in the form of interest and other benefits. As a result, members typically benefit from better rates on deposit accounts.
Credit unions have membership requirements based on where you live, work or worship, or through associations or causes that you’re involved with.
How do credit unions work?
Credit unions focus on helping members succeed financially. They're owned by members who vote and elect a volunteer board of directors.
Some membership requirements are easier to meet than others. If you qualify, you usually pay a one-time membership fee — sometimes as little as $5 — and you may need an opening deposit to fund your account.
At credit unions, the profits come back to members through educational programs, low fees, better rates on loans and higher rates on savings. One member’s money can become another member’s loan for a house, car or business.
» MORE: Credit unions vs. banks
What do credit unions offer?
Deposit accounts. The products and services at credit unions are similar to those found at banks, but sometimes the terminology is different. For example, “share draft accounts” are checking accounts, “share accounts” are savings accounts and “par value” is the minimum opening deposit.
Insurance for member funds. Deposits at federally chartered credit unions are insured by the National Credit Union Share Insurance Fund, which protects money the same way the Federal Deposit Insurance Corp. insures banks in case of failure. Members' deposits are insured up to $250,000 per ownership category.
Branches and ATMs. Credit unions tend to have their own branches and ATMs, but when they don’t, they may be able to offer them with the help of financial services technology by the Co-op organization. With Co-op, members of many credit unions can access their money through a network of about 30,000 ATMs — some of which include low fees internationally — and 5,600 shared branches.
Solid customer service. Even with technological support, some credit unions may lag behind in the latest online or mobile banking technology, but customer service tends to be one of their strengths. For the past five years, they've ranked slightly higher than banks in this category, according to the American Customer Service Index.
Other considerations before joining a credit union
Some state-chartered credit unions are privately insured and aren't backed by the full faith and credit of the U.S. government, as federally chartered credit unions are. Also, some credit unions have very specific membership requirements, such as military- and company-based credit unions.
There are 5,164 federally insured credit unions with over 120 million members. To find out whether your deposits are federally insured, visit the National Credit Union Administration’s credit union locator.
As with any financial product or service, make sure you evaluate factors such as fees, interest rates, convenience, access and available services before you become a member at a particular credit union.
» MORE: How to choose a credit union