Learn about credit unions and how they operate in this article.
A credit union is a not-for-profit financial institution owned by the members it serves. Credit unions have similar features to a bank, so members can open checking accounts, loans, credit cards, and generally more if approved to be a member.
Most credit unions have varying eligibility requirements for members. A credit union's membership is generally based on a common interest among its members. “The field of membership of a credit union is a part of its official charter and is the legal definition of who is eligible to join the credit union.” Says the National Credit Union Administration. “The common bond could be your employer, family, geographic location, or membership in a group.”
As a not-for-profit institution, members elect a volunteer board of directors to manage the credit union. Because credit unions operate to build community and wealth for their members, any profits made by the institution are given back in the form of lower interest rates, reduced fees, and additional member-focused policies and financial tools for their members.
While your money is insured and therefore protected in both a credit union and a bank, credit unions are insured by the National Credit Union Administration (NCUA), and banks are insured by the Federal Deposit Insurance Corporation (FDIC).
Each credit union is different, so it’s important to do your own research and if you decide to try the credit union route – find one that works for you!
Sources: National Credit Union Administration, CNBC Select.
