credit union

Credit Union

A credit union is a member-owned financial cooperative that provides many of the same services as a traditional bank, including checking and savings accounts, loans, and credit cards. Unlike banks, which are for-profit businesses owned by shareholders, credit unions are nonprofit organizations. Any earnings are typically returned to members in the form of lower loan rates, higher savings rates, or reduced fees.

To use a credit union, you generally need to become a member first. Membership is usually based on a shared connection, such as where you work, where you live, your employer, or a group you belong to. Once you join, you are considered a part-owner of the institution and typically have a voice in how it is run, including the ability to vote for the credit union’s board of directors.

Credit unions are regulated differently than banks. In the United States, federal credit unions are overseen by the National Credit Union Administration (NCUA), which also insures member deposits up to $250,000 per account holder, in most cases providing the same level of protection as FDIC insurance at a traditional bank.

Why it matters

Choosing a credit union over a traditional bank can have real financial benefits for everyday consumers. Credit unions generally offer lower interest rates on loans, higher yields on savings accounts, and fewer or lower fees. Because the goal is to serve members rather than generate profit for outside shareholders, the institution’s financial incentives are more closely aligned with your own.

That said, credit unions sometimes have fewer branch locations and ATMs than large national banks, and their digital banking tools may be more limited. It is worth comparing both options carefully before deciding where to keep your money.

Example

Suppose you are shopping for a car loan. Your national bank is offering an interest rate of 7.5% on a 48-month auto loan. You check with a local credit union where you are eligible for membership through your employer, and they offer the same loan at 5.9%. Over the life of the loan, that difference in rate could save you hundreds of dollars in interest. You join the credit union by opening a small savings account, then take out the auto loan at the lower rate.

Related terms

• Savings account
• NCUA insurance
• FDIC insurance
• Cooperative bank
• Loan interest rate