Basically, a credit union is a cooperative created to provide financial services to its members. That says it all, but it makes a very short article, so a bit of detail may be in order.
A credit union is a cooperative. This means that it is owned and controlled by its members, not a group of investors. It is also created to provide services to its members, rather than to make profits. The profits it makes are returned to the members, either as cash benefits or increased services.
A credit union is created to provide financial services. Because credit unions are not designed for maximization of profits, they can usually offer higher interest rates to savers and lower interest rates for borrowers.
The loans tend to be more secure than those of a faceless bank, because the borrowers are also the owners, and the neighbors or coworkers of owners. There are people who would happily short-change a place like “Mid-Town Security First Trust and Bank,” while they might have second thoughts about doing the same to their coworkers who are also owners of a credit union.
Many credit unions offer educational opportunities or financial counseling to their members. More and more, credit unions are offering all the financial tools that customers have come to expect, such as checking and savings accounts, certificates of deposits, loans of all kinds, Internet banking, credit and debit cards, ATMs, and more. As a credit union grows, it grows stronger, and can offer more to its members.
Notice the emphasis on members. Unlike a bank, where anyone can walk in and become a customer, a credit union is limited to its field of membership. This may be a single employer, or an industry, or a geographic area. This last one is called a community credit union, chartered to serve residents of a particular area, generally an area considered to be underserved by the traditional financial institutions.
The members form the customer base, as well as the owners and leaders. Unlike a bank, which has a Board of Directors that get paid a nice salary, a credit union’s Board is made up of unpaid volunteers. They are elected by the membership to provide leadership and oversight to the credit union, as are members of the credit and supervisory committees, two committees also elected to provide oversight of the credit union.
To sum up, a credit union is a financial institution that is owned and operated by its members. You may see the credit union logo, “Where people are more important than money.” It’s true. Credit unions are designed for service, not for profit, and it makes a huge difference in the way members are treated.