What is a Credit Union?

Written by on July 12, 2012 in Money - No comments | Print this page

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What is a Credit UnionHow are Credit Unions like Banks?

From a customers perspective Credit Unions and Banks are very similar things. They both take deposits and grant loans. Like banks, credit unions are insured up to $250,000 per depositor by a federal agency. For credit unions that agency is the National Credit Union Administration.

It is possible to use both of them without ever noticing a difference.

How are they different?

Credit Unions are non-profit organizations.  All profit is distributed to the members that have money with the bank.  As a result they don’t have the pressures of a bank to make a profit, they can afford to charge lower fees and pay higher interest rates while charging lower rates.

Credit Unions are membership organizations.  A deposit into a credit union is not really a deposit; it is a purchase of shares in the business.

The biggest disadvantages is that credit unions have fewer branches than banks.  They also offer fewer services.  It is important to investigate a credit union that you are thinking of joining to learn what services you are giving up before joining.

How do I join a Credit Union?

In the past it was difficult to join a credit union.  Typically they were only offered by a limited number of  employers or unions.  Today it is much easier with many local governments having setting them up so that the people in their communities can easily join.  Many even allow people from outside their community to join.

 Which is better?

Its hard to say that one is definitely better than the other, as there are many different banks and many different credit unions.  While the general rule is that credit unions offer better interest rates while offering fewer services, that is not always the case.  Some Credit Unions offer all of the same services as banks and some banks,especially online banks, offer rates comparable to credit unions.

 

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About the Author

Matt Brand

Matt Brand is QLR's money saving expert. His experience with credit cards and student loans have made him take a strong interest in personal finance, saving money and sharing his knowledge. He is passionate about teaching others how to avoid the trap and make smart financial decisions. View all posts by Matt Brand.