1. What is a Credit Union
A credit union is similar to a bank, offering services like checking and/or savings accounts, loans, and credit cards. What sets it apart is that credit unions are non-profit, member-owned organizations.
Credit unions, being owned by their members, are inclined to prioritize the creation of products and services that best meet the needs of their members. As a result, profits earned by credit unions are reinvested back into the organization, helping to maintain low interest rates, fees, and offer competitive products compared to traditional banks.
To become a member of a credit union, individuals must meet specific membership criteria, which may vary depending on the credit union.
2. Are Credit Unions Non-Profit
Yes. Credit unions are non-profit financial institutions. They qualify for non-profit status because they are owned by their membership and have volunteer Board of Directors comprised of members, while banks work to drive profits for shareholders. This shift in focus from profits to service make credit unions a great option for anyone who values community, a shared mission and personalized service.
3. Are Credit Unions FDIC Insured
No. Credit unions are not FDIC insured. The FDIC (Federal Deposit Insurance Corporation) is an independent agency created by Congress to maintain stability in the nation’s financial system (such as banks). Nearly all credit unions are insured though.
Federal credit unions and some state credit unions are insured by the NCUA (National Credit Union Administration) also created by Congress to ensure deposits and protect members of credit unions. State credit unions not NCUA insured can opt to be covered by private deposit insurance instead.
4. What’s the Difference Between a Bank and a Credit Union
While both offer very similar products such as checking and saving accounts, loans and credit cards, credit unions are different than banks. The characteristics that distinguish a credit union from a bank are its non-profit status and ownership makeup.
Credit unions are owned by the members it serves and works to address their interests. Banks are owned by shareholders and serve customers and are measured by the profits they create for the shareholders. Banks are also more likely to have a national presence whereas, credit unions tend to be regional if not local. The number of branches for a given credit union will less than a bank in many instances. Some credit unions may be part of a CO-OP Shared Branches which will allow members to perform a range of transactions at another credit union.
5. Are Credit Unions Better than Banks
Whether or not a credit union is better than a bank will depend on personal preference. Anyone can open a bank account, but credit unions require membership, and that membership is contingent upon meeting certain criteria.
If you meet the membership criteria and find the benefits of a credit union more desirable than that of a bank, then yes, they are better. However, if you find comfort in the convenience of a large well-known bank with branches throughout the country and an array of products and services, then maybe a bank is better for you. It all depends on your personal and financial needs and preferences.
6. What is a Federal Credit Union
Credit unions need a charter to operate. The charter, or license to operate must be obtained for a credit union to start building its membership. Credit unions are either chartered under the Federal Credit Union Act of 1934 or by their respective state government.
Federal credit unions will include “federal” in their name and are governed by the National Credit Union Administration and chartered under the Federal Credit Union Act of 1934. Some of the nation’s foremost credit unions are federal credit unions, with Navy Federal Credit Union being the largest.
7. How do Credit Unions Work
Credit unions work very similar to banks in that they accept deposits, offer loans, and provide a variety of other financial services such as credit cards, loans, and investment products. However, unlike banks, their mission is to serve their member owners with products and services best suited to meet the memberships needs.
The patrons of the credit union collectively own the credit union. Any profits earned are invested back into the organization or paid out as dividends. Additionally, since a credit union is a non-profit institution, they enjoy tax-exempt status and can use those savings to offer their members lower interest rates on services offered.
8. How do you Join a Credit Union
As member-owned organizations, credit unions have set membership criteria that must be met to join. In some cases, members need to work for a certain employer (the federal government for example in some cases), live in a particular area (could be a city or state) or belong to a specific school district, union or defined group.
Whatever the criteria, all members will have met it or be closely related to someone that is already a member to join. While membership is required and specific criteria must be met to join, it is possible to find a credit union to join.
9. Do Credit Unions Offer Loans
Just like banks, credit unions offer loans. Credit unions will use the deposits made by members to loan out money to its members. The assets on hand might dictate loan limits for smaller credit unions. That said, you can expect to borrow money for automobile purchases, mortgages, home equity, student loans, or personal reasons. The interest rates for loans at a credit union can be lower than those at a bank and savings from processing fees may be enjoyed. With its non-profit tax-exempt status, credit unions can use some those savings to offer better rates and lower fees to their member-owners.
10. Do Credit Unions Offer Student Loans
Yes. Credit unions offer student loans. Just like a bank, borrowers will need to have either a strong credit history or a creditworthy cosigner to qualify for the loan. Similar to other student loans from private lenders, the amount borrowed cannot exceed your total cost of attendance for school in a given year. Loan terms are likely to be similar to those at any other private lender.
Keep in mind, to take out a student loan from a credit union, you need to be a member of the credit union. Shop around and look for a credit union that suits you best. There are a number of credit unions that exist solely for the students at a given university or geographical area. If it turns out you cannot find a credit union where you qualify for membership on your own, you may have a close family member that does. If they join, you can join as well in most cases. If you do happen to qualify for membership one way or another, you can join at the same time you apply for the student loan.
