Definition
A credit union is a member-owned financial cooperative, democratically controlled by its members and operated for the purpose of promoting thrift, providing credit at competitive rates, and offering other financial services to its members. They are non-profit organizations that aim to serve their members rather than maximizing profits. Credit unions vary in size from small, volunteer-only operations to large entities with thousands of participants.
Key Takeaways
- A Credit Union is a member-owned financial institution where only members can do business. It focuses on providing a great place to save and get loans at reasonable rates.
- Credit Unions are non-profit organizations, which means excess earnings are returned to members in the form of reduced fees, higher savings rates and lower-loan rates, unlike most other financial institutions.
- Credit Unions often have a local focus and invest back into the local community. They are designed to serve their members on a more personal level, understanding local needs and circumstances.
Importance
The finance term “Credit Union” holds significant importance as it refers to a type of financial institution that’s completely owned and operated by its members.
Credit Unions function on the principle of ‘people helping people,’ aiming to assist members in achieving financial stability.
They typically offer lower fees, higher savings rates, and are personalized in their approach, meeting customer needs in ways that larger banks cannot.
Furthermore, being non-profit organizations, earnings are returned to members in the form of reduced fees, higher savings rates and lower loan rates.
Thus, for a person looking for a community-centric banking experience, joining a credit union can be a beneficial choice.
Explanation
A credit union is a not-for-profit financial institution, owned and operated by its members, that serves the financial needs of a particular community, group, or membership. The primary purpose of a credit union is to provide a cooperative banking service, where members, who are often from the same community or profession, pool their resources to provide loans and other financial services to each other.
This focus on mutual help and community-oriented services is designed to foster a supportive financial community, unlike traditional banks, which aim to generate profits for shareholders. Credit unions are used for a variety of personal and business financial services, including savings accounts, checking accounts, loans (auto, home, personal, student), credit cards, and other banking needs.
The profits made by credit unions are returned back to the members in the form of lower fees, higher savings rates and lower loan rates. In addition, because credit unions are community-focused, they often offer financial education and counseling services to their members.
This acts as a benefit as it helps members to make informed and beneficial financial choices.
Examples of Credit Union
Navy Federal Credit Union: This is a US-based credit union that provides financial services to former and current military personnel and their families. It is one of the largest and oldest credit unions, offering services from home mortgages to personal loans and credit cards.
The State Employees’ Credit Union (SECU): Based in North Carolina, SECU provides its services to employees of the state of North Carolina and their families. They offer a variety of services including savings and checking accounts, loans, insurance, investment, and tax preparations.
Alliant Credit Union: This Chicago, Illinois-based Credit Union offers services such as online banking, auto loans, credit cards, home equity lines, and more. Originally started for United Airlines employees, it now serves a wide range of customers from various industries.
FAQs on Credit Union
1. What Is a Credit Union?
A credit union is a type of financial cooperative that offers various services, such as savings and checking accounts, loans, and credit cards, to its members. It is owned and operated by its members with the key principle of mutual aid.
2. How is a Credit Union Different than a Bank?
While both credit unions and banks offer similar financial products, they have different business structures. Credit Unions are not-for-profit organizations owned by their members while banks are for-profit institutions owned by shareholders. The not-for-profit status often allows credit unions to offer higher interest rates on savings and lower rates on loans.
3.What are the Benefits of Becoming a Credit Union Member?
Being a member of a credit union often means having access to lower loan rates, higher interest on savings, and limited fees due to the not-for-profit nature of the institution. Plus, since credit unions are member-owned, every member is also an owner who has a vote in the credit union’s operations.
4. How do I join a Credit Union?
Membership requirements for credit unions can vary. Some credit unions have specific membership requirements like geographical location, employment or affiliation with particular groups. Others have more inclusive requirements. It’s best to check on a specific credit union’s website or contact them directly to know the exact process.
5. Are my Deposits at a Credit Union Safe?
Yes. Just like banks, credit unions in the United States are insured by a government agency, the National Credit Union Administration (NCUA), up to $250,000 per depositor. This means your deposits are safe even if the credit union fails.
Related Entrepreneurship Terms
- Member Ownership
- Non-Profit Status
- Dividends
- Shared Branching
- Loan Rates
