Credit Union Basics – What Is It And How Does It Compare To A Bank?
The credit union is a less talked about alternative to a bank. It provides very similar basic financial services to customers. You can find checking, savings, and money market deposit accounts as well as mortgages and other loans there. Below is an explanation of what they are, and how they are different from banks.
Credit unions were originally created as a way to serve the financial needs of a specific community. These communities can be the residents of a city, employees of a certain company, students and faculty of a school, etc. Besides being customers, the members are also its owners. They elect a volunteer board of directors and have more say in the investment decision process. This is because the purpose of the organization is to directly benefit the members.
Joining one nowadays is not as difficult as it used to be. Most extend their membership beyond those whom they were originally intended to serve. Generally, even if you don’t belong to a certain community, you can still become a member. Some will ask you to make a donation to a certain charity they support. If you belong to an associated organization, are related by blood or marriage to a member, or even live near a branch, you may be eligible to join.
Unlike banks, credit unions operate under a not-for-profit format. Because their main purpose is to serve their members, they use their profits just to cover the costs and reinvest the rest to offer members better deposit account rates and lower borrowing costs. Banks, on the other hand, turn profits in order to answer to their investors. Because of this, however, credit unions tend to provide more basic financial services instead of a larger variety by banks.
All in all, credit unions are very similar to banks in that they’re great providers of basic financial services. Like banks, your deposits under $250,000 are insured by the United States government. Instead of being insured under the Federal Deposit Insurance Corporation (FDIC), though, it is under the National Credit Union Administration (NCUA). I hope this makes it clearer what credit unions are and why they exist. Be sure to take them into consideration the next time you are looking to take out a loan or open a deposit account.