A credit union is a member-owned financial institution, not a bank

A credit union is a nonprofit organization where members pool their money to lend to each other. Unlike a bank, which is owned by shareholders and designed to make a profit, a credit union is owned by the people who use it. When you join a credit union, you become a partial owner. Any profit the credit union makes gets returned to members as lower loan rates, higher savings rates, or reduced fees.

Credit unions operate under federal or state charters and are insured by the National Credit Union Administration (NCUA), which works similarly to the FDIC for banks. Your deposits are protected up to $250,000, the same as at a bank. The key difference is structure: a bank answers to shareholders; a credit union answers to its members.

Key Takeaways

  • Credit unions are nonprofit, member-owned financial institutions where profits return to members rather than shareholders.
  • You must meet specific membership requirements to join a credit union, which vary by institution and may be based on your employer, location, or family connections.
  • Credit unions typically offer lower loan rates and higher savings rates than banks because they operate on a nonprofit basis.
  • Your deposits are insured by the NCUA up to $250,000, the same protection level as bank deposits through the FDIC.
  • Credit unions are smaller and more local than most banks, so they may have fewer branches and ATMs but often provide more personalized service.

How membership works

You cannot simply walk into a credit union and open an account the way you can at a bank. Credit unions serve specific groups of people, defined by what is called a field of membership. This might be employees of a particular company, members of a union, residents of a certain county, students at a college, or people who work in a specific industry. Some credit unions have expanded their fields to include family members of existing members or people who live or work in a geographic area.

When you join, you buy a share (usually a small amount, often $25 or less) that makes you a member-owner. You then have voting rights on major credit union decisions and may receive a share of the profits at year's end. Some credit unions pay dividends on savings accounts; others reduce loan rates or waive fees.

What services credit unions offer

Credit unions provide many of the same services as banks: checking and savings accounts, personal loans, auto loans, mortgages, credit cards, and certificates of deposit (CDs). Some offer investment services, retirement accounts, and business banking. The main difference is usually in the rates and fees. Credit unions often charge lower fees for overdrafts, bounced checks, or account maintenance, and they may offer better rates on savings accounts and loans.

Because credit unions are smaller and more localized than most banks, they typically have fewer branches and ATMs. However, many credit unions participate in shared branching networks and ATM alliances, so you can access services at other credit unions' locations. Online banking and mobile apps are now standard at most credit unions, making it easier to manage your money without visiting a physical branch.

Credit unions versus banks: the practical differences

The nonprofit structure creates real differences in how credit unions operate. A bank's goal is to maximize shareholder returns; a credit union's goal is to serve its members. This shows up in loan rates—credit unions often charge 1 to 2 percentage points less on auto loans and personal loans. It also shows up in savings rates, which tend to be higher at credit unions. Fees are typically lower or nonexistent for basic services.

The trade-off is convenience. A large national bank has thousands of branches and ATMs; a credit union might have a handful. If you travel frequently or need to deposit checks at multiple locations, a bank's network may be more practical. If you value lower rates and personalized service and do most of your banking online, a credit union often makes more sense.

How credit unions are regulated and insured

Credit unions are regulated by the NCUA, a federal agency that charters and supervises them. Some credit unions are chartered by individual states instead and are regulated by state banking authorities, though most also carry NCUA insurance. The NCUA insures deposits the same way the FDIC does: up to $250,000 per account holder, per institution. If a credit union fails, your money is protected.

Credit unions must maintain certain capital levels and undergo regular audits to stay solvent. The regulatory framework is designed to keep credit unions stable and prevent the kind of failures that happened during the 2008 financial crisis. In practice, credit union failures are rare.

Finding and joining a credit union

Start by asking your employer, union, or professional association whether they sponsor a credit union. If not, search online for credit unions in your area or that serve your profession. The CO-OP Network and Alliant Credit Union's network are two large shared branching systems that can help you find a location near you. Many credit unions now allow you to join online if you meet their field of membership requirements.

When you find a credit union you are may be able to access to join, you will need to provide identification and proof of address, just as you would at a bank. Some credit unions require a minimum deposit to open an account; others do not. Once you are a member, you can use their services and participate in their governance.

Why credit unions exist and who runs them

Credit unions grew out of a movement to provide banking services to working people who were shut out of traditional banks. The first credit union in the United States was founded in 1909. Today, there are roughly 4,900 credit unions in the country, serving about 130 million members. They range from small, single-branch institutions to large networks with hundreds of thousands of members.

Credit unions are run by a board of directors elected by members, not appointed by shareholders. This means the people making decisions about rates, fees, and services are accountable to the people using the credit union. In practice, this often leads to decisions that prioritize member benefit over maximum profit.

Frequently Asked Questions

Do I need good credit to join a credit union?

No. Membership requirements are based on your employer, location, family ties, or profession—not your credit score. However, if you want to borrow money from the credit union, they will check your credit just as a bank would. You can open a savings account at almost any credit union regardless of credit history.

Can I use a credit union ATM if I don't live near a branch?

Yes. Most credit unions participate in shared branching networks and ATM alliances. You can withdraw money and make deposits at other credit unions' ATMs and branches, even if they are not your credit union. Ask your credit union which networks they participate in.

What happens if my credit union fails?

Your deposits are insured by the NCUA up to $250,000, just as bank deposits are insured by the FDIC. If the credit union fails, you will receive your money back. Credit union failures are rare because they are regulated and must maintain certain financial standards.

Can I have accounts at both a bank and a credit union?

Yes. Many people maintain accounts at both. You might use a bank for its wider branch network and a credit union for better rates on savings or loans. There is no rule against using both.

How do credit unions make money if they are nonprofit?

Credit unions make money the same way banks do—by charging interest on loans and earning fees on services. The difference is what happens to that money. A bank pays dividends to shareholders; a credit union returns profits to members through lower rates, higher dividends on savings, or reduced fees.