How Credit Unions Work (2024)

FAQs

How does a credit union work? ›

A credit union is a self-help co-operative whose members pool their savings to provide each other with credit at a low interest rate. To be part of a credit union you have to share a common bond with other members. This is something you all have in common such as: living or working in the same area.

Limited accessibility. Credit unions tend to have fewer branches than traditional banks. A credit union may not be close to where you live or work, which could be a problem unless your credit union is part of a shared branch network and/or a large ATM network such as Allpoint or MoneyPass.

For decades, bankers have objected to the tax breaks and sponsor subsidies enjoyed by credit unions and not available to banks. Because such challenges haven't slowed down the growth of credit unions, banks continue to look for other reasons to allege unfair competition.

Credit unions are non-profit financial cooperatives owned by their members and governed by a board of directors elected by, and from among, those members. Usually there is a common bond among the members, such as belonging to the same organization or living in the same geographical area.

Like banks, which are federally insured by the FDIC, credit unions are insured by the NCUA, making them just as safe as banks. The National Credit Union Administration is a US government agency that regulates and supervises credit unions.

Credit unions go beyond standard banking, offering lower fees on loans, higher dividend rates on accounts, and more personalized member benefits. Unlike for-profit banks focused on maximizing shareholder profits, credit unions are member-owned, non-profit financial institutions.

Weaknesses of Credit Unions

Membership is restricted. The membership of a credit union is restricted to a specific community, most often a religion, profession, or geographic location.

Credit unions are a great option for many people, and they provide a range of perks that big banks simply can't, such as a more personalized banking experience, lower rates on loans, and higher rates on savings accounts.

Can a government take your savings? Through “right of offset,” the government allows banks and credit unions to access the savings of their account holders under certain circ*mstances. This is allowed when the consumer misses a debt payment owed to that same financial institution.

Are credit unions safe during a banking crisis? ›

Credit unions and banks are both insured, with most banks being insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per customer. Most credit unions are similarly insured by the National Credit Union Administration (NCUA) for up to $250,000.

Any income the credit union generates through interest, fees and loans is then used to fund community projects, reinvest into the organization or provide services that directly benefit members, like paying higher savings interest rates.

The downside of credit unions include: the eligibility requirements for membership and the payment of a member fee, fewer products and services and limited branches and ATM's.

Higher returns, better savings, low interest on borrowings, and a sense of community – these are just a few of the benefits of credit union membership.

FAQ: Largest Credit Unions

Navy Federal is the country's largest credit union with around $168.4 billion in total assets and 13.2 million customers at the end of 2022, according to the latest data from the NCUA.

Higher returns, better savings, low interest on borrowings, and a sense of community – these are just a few of the benefits of credit union membership.

Any income the credit union generates through interest, fees and loans is then used to fund community projects, reinvest into the organization or provide services that directly benefit members, like paying higher savings interest rates.

Negative marks on your banking history could impact your eligibility. While credit unions generally don't look at your credit when you join, they will pull your credit report if you apply for a loan or line of credit in the future.

A federally chartered credit union is a great way to create access to affordable financial services to people where you work or worship, members of an association where you belong, or people in your community.