A credit union is a financial institution, similar to a bank, except unlike a bank which is owned by shareholders, credit unions are owned by the people who use them, members. Members must meet specific eligibility criteria to obtain membership, and these can vary by credit union. Members enjoy lower interest rates, lower fees and more personalized service versus banks.
What’s the Difference Between a Bank and Credit Union
The primary difference between a bank and credit union is that a bank is a for-profit financial institution seeking to please its shareholders with increasing growth and profits. By contrast, a credit union is a non-profit organization whose primary mission is to serve its member-owners. Banks are larger in size and may have branches located in multiple cities throughout the country where anyone can open an account if desired. Credit unions are typically smaller, locally based institutions existing to serve a unique members-only population of people such as military, unions or community groups. Aside from the structure, size and membership requirements, banks and credit unions function in many of the same ways, with many of same types of products and services.
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How do Credit Unions Work
Credit Unions work much like a bank in that both provide financial services. At a credit union, you can open an account and do many of the same activities you would do at a bank, such as borrow money (in the form of personal loans and potentially student loans), save money, open a credit card, etc. The credit union is a cooperative, in that they will use money on deposit from members to loan to other credit union members. Interest rates and fees are typically more competitive (e.g., lower) at a credit union than at a bank due to the non-profit status and member-owned structure of credit unions, which prioritize value and service to its members.
Credit Union Products and Services
Credit Unions are like any other financial institution. They offer checking and savings accounts, lines of credit, loans for cars, mortgages and personal use as well as credit cards. Additionally, like banks they have ATM’s (Automated Teller Machines). While credit unions may have limited locations, many participate in a credit union CO-OP that allows you to do banking at partner locations. Some credit unions also offer student loans as part of the Credit Union Student Choice program, which offers undergraduate students, student loans to help pay for college expenses.
How to Join a Credit Union
Credit unions require membership to belong and open an account or have access to their products and services. Don’t be surprised if a credit union requires you to keep a small minimum balance in a savings account to join and maintain membership. The membership requirement is focused on common bonds to help foster a “community-based” cooperative nature amongst the members. The membership criteria can vary, but generally credit unions will require a member prove affiliation with a specific group or organization to join. Types of affiliation can include: military personal, union members, certain employers groups such as teachers or government entities or residing in a specific city or state. One membership is establishment, immediate family members can join, based upon the primary members qualifications and good standing with the credit union.
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Advantages of Credit Unions over Banks
Aside from the focus on community and excellent service to its member owners, there are a number of other advantages to joining a credit union. With no shareholders to demand high profits, credit unions are free to reinvest profits back into the business for the benefit of all the member-owners. Additionally, with its non-profit status, credit unions enjoy exemption from certain taxes, they can use those savings to offer lower interest rates to members borrowing money. In turn, they can also use tax savings to offer higher returns on investment products. Fees are also generally lower than those of banks.
Disadvantages of Credit Unions
Not to take away from banks, credit unions do have some disadvantages. The foremost disadvantage being the membership requirement. Without the right affiliation, joining a credit union might not be an option to even consider. Big national banks not only offer their products and services to most anyone, but they are usually have quite a few more branches in more locations with more ATM’s as a convenience for customers to take advantage of. Banks are always looking for ways to grow and increase their profits, in doing so, they are often innovators creating new and exciting products and technology for customers to use. Credit unions prioritize their resources to serving their members and can lag behind banks when it comes to innovation and technology.
Credit Union Regulators
Federally chartered credit unions are regulated by the National Credit Union Administration which was created by congress in 1970. The NCUA will charter and regulate federal credit unions and insures deposits for credit union members for these federal credit unions, similar to how the FDIC will insure deposits for customers of a bank. State chartered credit unions are regulated at the state level and in some cases have private insurance to cover deposits for members.
History of Credit Unions in the United States
First conceived in Germany in 1849, the idea of credit unions made their way to the United States around 1908. In 1909, the first credit union is formed in New Hampshire alongside the Massachusetts Credit Union Act, which served as a model for the more formal Federal Credit Union Act established in the United States in 1934 by President Roosevelt. Just a few months later, the Morris Sheppard Federal Credit Union in Texarkana, Texas opened as the first federally chartered credit union.
Apply for a University Credit Union Private Student Lending Solution
- Variable rate line of credit option allows you to apply once and secure funding for your entire college career.*
- Variable rates as low as 1.99% APR1; Fixed rates as low as 3.49% APR2
- Personalized 1:1 support at every step of the lending process.
- In-school deferment option
- 15-, 20-, and 25-year repayment terms available◊
- Cover any school-certified costs including tuition, housing, and books.
*Subject to credit qualification and annual review. Must continue to meet school’s Satisfactory Academic Progress (SAP) requirements. Credit union membership and minimum share deposit required.
**Approved schools subject to change without notice.
^The APR will not fall below the floor rate as stated in the account opening disclosure regardless of the index or any additional rate discount.
◊ Variable Rate Line of Credit Option: the repayment term is 20 years if your principal balance at repayment is $40,000 or less, and 25 years if your principal balance at repayment is more than $40,000.
Fixed Rate Loan Option: The loan term is a total of 15 years including a combined maximum of 4.5 years of in-school or grace period, and a repayment term of up to 10.5 years. Full repayment begins at the end of the grace period unless full repayment is selected during enrollment.
1Variable Rate Disclosures
The Annual Percentage Rate (APR) for our undergraduate private education line of credit is variable and is based on the Prime index plus a margin. The current offered rate will be between 1.99% and 10.49% APR. The Annual Percentage Rate is subject to increase after consummation. The interest rate will be adjusted quarterly, based on changes to the Index. The APR will not exceed 18.00% or fall below the floor rate regardless of the Index or any additional rate discount. Any increase in the Index may increase the APR and the amount of your monthly payment. The "Index" for the quarter beginning July 1st, 2021, is 3.25%, which was the Prime index published in the Wall Street Journal on the first business day of June 2021. Current offered rate(s) are calculated by using the index, margin and floor value(s) in effect. Your specific interest rate, margin, floor, and/or credit approval depends upon the credit qualifications of the student borrower and co-borrower (if applicable). Margin will be disclosed at account opening. Student borrowers may apply with a creditworthy co-borrower which may result in a better chance of approval and/or lower interest rate.
2Fixed Rate Disclosures
The Annual Percentage Rate (APR) for our undergraduate private education loan is fixed for the life of the loan. The current offered rate will be between 3.49% and 11.49% APR. Your interest rate is fixed and your rate and/or credit approval depends upon the credit qualifications of the student borrower or cosigner (if applicable). Your actual rate within the range stated will be disclosed upon approval.
Student borrowers may apply with a creditworthy coborrower which may result in a better chance of approval and/or lower interest rate.
All loans subject to approval and restrictions may apply. We reserve the right to change rates for new applications at any time and without notice. Credit union membership and a minimum share deposit is required.