What Is a Credit Union? The Benefits of Membership

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 unlike banks, a credit union's 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. But some credit unions’ membership requirements are easy enough that most people can become eligible to join. For example, you may need to pay a one-time membership fee — sometimes as little as $5 — to qualify. And you may need an opening deposit to fund your account.

» Compare to: What is a bank?

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.

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.

» Learn the differences: Compare 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 “share certificates” are equivalent to certificates of deposit at a bank.

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.

» Learn more: See how NCUA insurance works and how FDIC insurance works

Branches and ATMs. Credit unions tend to have their own branches and ATMs, but when they don’t have a large network, they may be able to offer access with the help of the Co-op organization. With Co-op, members of many credit unions can access their money through a network of about 30,000 ATMs and 5,600 shared branches.

» Get more details: Read about shared branch credit unions

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. Credit unions have a much lower percentage of customers who’ve made complaints, according to the American Customer Satisfaction Index ^[0]

» Check out NerdWallet’s picks for best credit unions

What to consider before joining a credit union

Insurance: 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. To find out whether deposits are federally insured at a particular institution, visit the National Credit Union Administration’s credit union locator.

Membership: Some credit unions have very specific membership requirements, such as military- and company-based credit unions. Even if you don’t qualify for those, there are still about 4,400 federally insured credit unions with more than 142 million members. There’s a good chance you’ll be able to find one that you can join.

As with any financial product or service, make sure you evaluate factors such as fees, interest rates, convenience, access and available services before you join a particular credit union.