A credit union is a member-owned financial institution, not a bank

A credit union is a cooperative where members pool their money to lend to each other. Unlike a bank, which is owned by shareholders and run for profit, a credit union is owned by the people who use it. Any profit the credit union makes gets returned to members as lower loan rates, higher savings rates, or reduced fees.

Credit unions range in size from a few hundred members to over a million. Some serve a specific employer, industry, or geographic area. Others are open to anyone who lives or works in a particular county or region. You become a member by opening an account, and membership gives you voting rights on how the credit union operates.

The National Credit Union Administration (NCUA), a federal agency, insures deposits at most credit unions up to $250,000 per account type, the same way the Federal Deposit Insurance Corporation (FDIC) insures bank deposits. This means your money is protected if the credit union fails.

Key Takeaways

  • Credit unions are owned by their members and return profits to members through better rates and lower fees, rather than paying shareholders.
  • Membership is usually limited by field of membership — such as working for a specific employer, living in a certain county, or belonging to an organization — though some credit unions have open membership.
  • Credit unions offer the same basic services as banks: checking and savings accounts, loans, credit cards, and investment products.
  • The NCUA insures deposits at federal credit unions and most state-chartered credit unions up to $250,000 per account type, the same protection banks offer.
  • Credit unions typically charge lower fees and offer better rates on savings and loans than banks, because they operate on a not-for-profit model.

How membership and field of membership work

To join a credit union, you must fall within its field of membership. This is the group the credit union is chartered to serve. Common fields of membership include employees of a specific company, members of a union or professional association, residents of a particular county or city, or people who work in a certain industry.

Some credit unions have very narrow fields of membership — for example, only employees of a hospital system or members of a teachers' union. Others have broad fields, such as anyone who lives in a five-county area. A few credit unions have open fields of membership and accept anyone, though this is less common.

When you explore to join, the credit union will ask you to verify that you meet the field of membership requirement. This might mean showing a pay stub, a lease, a membership card, or proof of residence. Once you are accepted, you remain a member even if your circumstances change — for example, if you leave the employer that may have access to you to join.

Credit union accounts and services

Credit unions offer the same types of accounts and services as banks. You can open a checking account for everyday spending, a savings account to set money aside, and certificates of deposit (CDs) to lock in a fixed rate for a set period. Many credit unions also offer money market accounts and individual retirement accounts (IRAs).

On the lending side, credit unions make personal loans, auto loans, home loans, and credit cards. Because credit unions operate on a not-for-profit basis, they often charge lower interest rates on loans and pay higher rates on savings accounts than banks do. They also tend to charge fewer and lower fees — for example, many credit unions do not charge overdraft fees or monthly account maintenance fees.

Larger credit unions offer investment services, including brokerage accounts and financial planning. Most credit unions are connected to a shared branching network and ATM network, so you can conduct transactions at other credit unions' branches and ATMs without paying a fee, even if you are far from your home credit union.

How credit unions are insured and regulated

Credit unions are regulated by the NCUA at the federal level. Some credit unions are chartered and insured by the NCUA (federal credit unions), while others are chartered by their state but still insured by the NCUA (state-chartered, federally insured credit unions). A small number of credit unions are insured by state insurance funds instead of the NCUA.

The NCUA insures deposits up to $250,000 per depositor, per account type, at each credit union. This means if you have a savings account and a checking account at the same credit union, each is insured separately up to $250,000. If you have an IRA at the same credit union, that is also insured separately. Joint accounts are insured separately from individual accounts.

Credit unions must meet capital requirements, undergo regular audits, and follow lending standards set by the NCUA. If a credit union fails, the NCUA steps in to protect members' deposits and, when possible, transfer accounts to another credit union.

Credit unions versus banks: the main differences

The fundamental difference is ownership. A bank is owned by shareholders who expect a return on their investment. A credit union is owned by its members, and any surplus is returned to members. This structure leads to practical differences in how the two operate.

Credit unions typically offer lower loan rates and higher savings rates because they do not need to generate profit for shareholders. They also tend to charge fewer fees and have more lenient lending standards — a credit union may approve a loan to someone with a lower credit score if they have a steady income and a history with the credit union. Banks, by contrast, rely more heavily on credit scores and may charge higher fees to offset lower interest rates on deposits.

Banks are usually larger and have more branches and ATMs. Credit unions are smaller and more localized, though shared branching and ATM networks reduce this disadvantage. Banks offer more complex services like investment banking and wealth management, while credit unions focus on basic banking and lending.

How credit unions make decisions

Credit union members have a say in how the institution operates. Each member gets one vote in the annual election of the board of directors, regardless of how much money they have on deposit. This is different from a bank, where shareholders vote based on the number of shares they own.

Members can attend annual meetings, vote on major policy changes, and run for the board. The board hires a chief executive officer to manage day-to-day operations. Because the board is elected by members, credit unions are theoretically more responsive to member needs than banks are to customer needs.

Frequently Asked Questions

Can I join a credit union if I do not work for the employer it serves?

It depends on the credit union's field of membership. Some credit unions serve only employees of a specific company. Others serve employees of multiple employers in an industry, residents of a geographic area, or members of an organization. You can search for credit unions in your area on the CO-OP Network website or ask your bank if they know of credit unions you might join.

Is my money as safe in a credit union as in a bank?

Yes, if the credit union is insured by the NCUA. Deposits are insured up to $250,000 per account type, the same as FDIC insurance at banks. You can check whether a credit union is NCUA-insured by searching the NCUA's credit union locator tool on their website. A very small number of credit unions are insured by state insurance funds instead, which offer varying levels of protection.

Do credit unions have ATMs?

Most credit unions participate in shared ATM networks, so you can withdraw money at ATMs owned by other credit unions without paying a fee. The largest networks are CO-OP and Allpoint. Some credit unions also have their own ATMs. Ask the credit union about ATM access before you join.

What happens if a credit union fails?

The NCUA takes over and protects your deposits up to $250,000 per account type. In most cases, your accounts are transferred to another credit union so you can continue banking without interruption. If no other credit union can take your accounts, the NCUA pays out your insured deposits directly.

Can I have accounts at more than one credit union?

Yes. You can join and maintain accounts at multiple credit unions if you meet the field of membership for each one. Your deposits at each credit union are insured separately up to $250,000 per account type, so you can spread your savings across multiple institutions if you want more than $250,000 in deposit insurance coverage.