Credit Union

Credit Unions: What They Are, How They Work, and Pros & Cons

Key takeaways
* A credit union is a member-owned, not-for-profit financial cooperative that provides banking services.
* Because they operate for members rather than shareholders, credit unions often offer higher deposit rates, lower loan rates, and lower fees.
* Drawbacks can include fewer branches, more limited product choices, and less advanced technology at smaller institutions.
* Federally chartered credit unions are insured by the NCUA up to $250,000 per ownership category.

What is a credit union?
A credit union is a financial cooperative owned and governed by its members. Members pool funds (effectively buying shares in the cooperative) to provide loans, deposit accounts, and other banking services to one another. Any surplus earnings are used to improve services and return value to members rather than to pay outside shareholders.

How credit unions operate
* Member ownership and voting: Every member is a part-owner and typically has one vote regardless of account balance. Members elect the board of directors and influence major decisions.
* Not-for-profit model: Credit unions aim to generate enough income to operate and improve services. Profits beyond that are returned to members through better rates, lower fees, and enhanced services.
* Product delivery: Many credit unions provide checking and savings accounts, CDs, loans, mortgages, and retirement accounts. Larger credit unions may offer robust online and mobile banking; smaller ones may be more limited technologically.

Membership: who can join and how
* Eligibility: Historically, credit union membership required a common bond (same employer, industry, association, or community). Many credit unions now allow broader public membership, but some still have specific eligibility requirements.
* Joining: To join, you open a share account (often for a small minimum deposit). Once you’ve opened an account, you become a member and owner, with the right to vote in the credit union’s affairs.
* Check the “field of membership” or membership page on a credit union’s website for specific eligibility and application details.

Advantages vs. banks
* Better rates and lower fees: Because they’re member-focused and not-for-profit, credit unions often pay higher interest on deposits and charge lower interest and fees on loans.
* Member-first governance: Decisions are made with members’ interests as the priority, and earnings are returned to members rather than shareholders.
* Personalized service: Smaller size and local focus can translate into more personalized customer service and community orientation.

Disadvantages vs. banks
* Fewer branches and ATMs: Many credit unions have fewer physical locations, which can be inconvenient for customers who prefer in-person banking. However, many participate in shared ATM networks to expand access.
* Varied technology: Small credit unions may have less advanced online and mobile banking platforms compared with large national banks. Mid-size and large credit unions often offer competitive digital services.
* More limited product selection: Credit unions may offer fewer variations of products (for example, fewer credit card choices) than large banks.
* Shorter hours: Local branch hours can be more limited; however, many credit unions provide phone and online support beyond branch hours.

Account insurance and safety
* NCUA insurance: Federally chartered credit unions and many state-chartered ones are insured by the National Credit Union Administration (NCUA) through the National Credit Union Share Insurance Fund (NCUSIF).
* Coverage limits: The NCUA insures accounts up to $250,000 per ownership category (individual accounts, joint accounts, certain retirement accounts, trust accounts, etc.). Different ownership categories are insured separately, which can increase total insured balances across categories.

Common questions
Q: Do credit unions offer better mortgage and loan rates?
A: Often yes. Credit unions commonly offer competitive mortgage and consumer loan rates because profits are returned to members rather than external shareholders.

Q: Can anyone join a credit union?
A: Many credit unions now accept the general public, but some still require specific eligibility (employment, association, or geographic ties). Check the credit union’s membership criteria.

Q: How do I join a credit union?
A: Locate a credit union that accepts you, complete the membership application (online or in-branch), and open the required share account with the minimum deposit.

Bottom line
Credit unions are member-owned cooperatives that prioritize member value over shareholder profit. They typically deliver higher deposit yields, lower loan costs, and lower fees, along with a community-oriented approach. Consider a credit union if you want potentially better rates and personalized service and are comfortable with fewer branches or a smaller digital footprint. Always confirm membership eligibility and review NCUA insurance coverage when choosing a credit union.