A credit union is a financial institution owned by its members, not by outside shareholders

A credit union is a bank-like organization where the people who use it also own it. When you open an account at a credit union, you become a part-owner. The credit union is run by a board of directors elected from the membership, and any profit the credit union makes gets returned to members through better interest rates on savings, lower fees, or lower loan rates. This is different from a traditional bank, where shareholders own the institution and profits go to them.

Credit unions offer the same basic services as banks: checking and savings accounts, loans, credit cards, and money transfers. They are insured by the National Credit Union Administration (NCUA), a federal agency, which means your deposits are protected up to $250,000 per account type, just as they are at banks insured by the Federal Deposit Insurance Corporation (FDIC).

To use a credit union, you must meet its field of membership. This is a requirement set by the credit union's charter and approved by the NCUA. A field of membership might be based on where you work, where you live, what industry you work in, or membership in a specific organization. Some credit unions have very broad fields of membership; others are more restrictive.

Key Takeaways

  • Credit union members own the institution collectively, so profits are returned to members rather than paid to outside shareholders.
  • You must meet a credit union's field of membership to join, which varies by credit union and might be based on your employer, location, or organization membership.
  • Credit unions offer checking, savings, loans, and credit cards, and deposits are insured by the NCUA up to $250,000 per account type.
  • Credit unions typically charge lower fees and offer better interest rates than traditional banks because they operate on a not-for-profit basis.
  • Most credit unions are part of a shared branching network and ATM network, so you can conduct transactions at other credit unions even if you are not a member there.

How credit unions differ from traditional banks

The core difference is ownership and purpose. A bank is owned by shareholders and operates to generate profit for those shareholders. A credit union is owned by its members and operates to serve those members. This difference shapes how each institution makes decisions about fees, interest rates, and which services to offer.

Because credit unions do not have to pay shareholders, they can charge lower fees on accounts and loans. Many credit unions charge no monthly maintenance fee on checking accounts, while banks often do. Credit unions also tend to offer higher interest rates on savings accounts and lower rates on loans, because the goal is to benefit members, not maximize profit.

Credit unions are typically smaller and more local than banks. A credit union might serve a single county or a specific group of people. This can mean more personalized service and faster decisions on loan applications, but it also means fewer branches and ATMs than a large national bank. However, most credit unions participate in shared branching networks and shared ATM networks, so members can use other credit union branches and ATMs without paying a fee.

Who can join a credit union

Membership requirements depend entirely on the credit union's field of membership. Some credit unions are open to anyone who lives or works in a certain geographic area. Others are restricted to employees of a specific company, members of a particular union or professional association, or people who work in a certain industry.

To learn about you meet a credit union's membership requirements, you can contact the credit union directly or check its website. The membership requirements are public information. If you do not meet the requirements for one credit union, you may be able to join another. The CO-OP Network and Shared Branch networks allow you to search for credit unions by location or membership criteria.

Some credit unions allow family members of existing members to join, even if those family members do not otherwise meet the field of membership. A few credit unions have very open fields of membership that include anyone in a broad geographic region or anyone who wants to join.

Services credit unions provide

Credit unions offer a range of financial products similar to what banks offer. Most credit unions have checking accounts, savings accounts, money market accounts, and certificates of deposit (CDs). They also issue credit cards, auto loans, personal loans, home loans, and home equity lines of credit.

Some credit unions offer investment services, retirement accounts (IRAs), and business accounts, though not all do. Smaller credit unions may have a narrower range of services than larger ones. Before joining, you can ask what services a specific credit union offers and whether they meet your needs.

Credit unions also offer online and mobile banking, bill pay, direct deposit, and wire transfers. Many participate in ATM networks that let members withdraw cash at thousands of ATMs nationwide without paying a fee.

How credit unions are regulated and insured

Credit unions are regulated by the National Credit Union Administration (NCUA), a federal agency created by Congress. The NCUA charters credit unions, supervises them to make sure they follow the law, and insures member deposits. Federally chartered credit unions are regulated by the NCUA. State-chartered credit unions may be regulated by both the NCUA and their state's banking regulator.

Deposits at a federally insured credit union are protected by the NCUA Share Insurance Fund. This insurance covers up to $250,000 per depositor, per account type, at each credit union. Account types include individual accounts, joint accounts, retirement accounts, and trust accounts. If a credit union fails, the NCUA steps in to protect members' deposits up to the insurance limit.

Credit unions must meet capital requirements, undergo regular audits, and follow rules about lending practices, consumer protection, and fair lending. These rules are designed to keep credit unions safe and sound and to protect members.

Credit union fees and interest rates

Credit unions typically charge lower fees than banks. Many credit unions charge no monthly fee for checking or savings accounts. When they do charge fees, they are often lower than bank fees. For example, a credit union might charge $5 for an overdraft, while a bank might charge $35.

Interest rates on savings accounts and CDs at credit unions are often higher than at banks. Because credit unions return profits to members, they can afford to pay more interest on deposits. Interest rates vary by credit union and change over time, so it is worth comparing rates at different credit unions and banks.

Loan rates at credit unions are often lower than at banks or other lenders. A credit union auto loan or personal loan might carry a lower interest rate than the same loan at a bank. Again, rates vary by credit union and by the borrower's credit history and income.

How to join a credit union

To join a credit union, you first need to find one where you meet the field of membership. You can search online using the CO-OP Network locator or the Shared Branch locator, or you can ask friends and family if they belong to a credit union they recommend.

Once you have found a credit union, contact them to confirm you meet their membership requirements. You will need to provide identification and proof of address. Some credit unions require an initial deposit to open an account, though many do not. The credit union will explain what documents you need and what the process is.

After you join, you can open accounts and use the credit union's services. You will receive a membership card or account number and can set up online banking, direct deposit, and other services.

Frequently Asked Questions

Is my money safe at a credit union?

Yes, deposits at a federally insured credit union are protected by the NCUA Share Insurance Fund up to $250,000 per account type. This is the same level of protection as FDIC insurance at banks. If a credit union fails, the NCUA protects your deposits.

Can I use a credit union ATM if I am not a member?

Most credit unions participate in shared ATM networks, so you can use ATMs at other credit unions without paying a fee. You can also use ATMs at banks and other networks, though you may be charged a fee. Ask your credit union which networks it participates in.

What happens if I move and no longer meet a credit union's field of membership?

Many credit unions allow members to stay even if they no longer meet the field of membership, as long as they remain members. However, this varies by credit union. Check with your credit union about their policy. You may also be able to join a different credit union in your new location.

Do credit unions offer the same services as banks?

Credit unions offer most of the same basic services as banks: checking, savings, loans, and credit cards. However, not all credit unions offer every service. Smaller credit unions may not offer investment accounts or business services. Ask a specific credit union what services they provide.

How do I know if a credit union is federally insured?

You can search the NCUA's database of federally insured credit unions on the NCUA website. If a credit union is in the database, your deposits are insured. You can also ask the credit union directly whether it is federally insured.