What is a Credit Union?

Joseph Meyer
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What Is The Difference Between a Bank and a Credit Union

A credit union is really just like a bank, except instead of being driven by profit as a privately-owned institution is, a credit union operates as a non-profit cooperative. The mission of a credit union is to provide service to members and promote thrift. The members of a credit union pool their assets together and form this cooperative which gives them the distinction of being member-owned.

So, in short, a credit union is a not-for-profit financial institution organized to encourage saving. Members can open savings and checking accounts, loans, and so on.

The main difference between a credit union and a bank is in the profit motive. Credit unions are non-profit cooperatives that are member-owned. Borrowers from a credit union must repay the loan to the credit union, which then pays the interest on the loan back to the members of the cooperative.

In the private banking world, the bank makes the money and the customer is an end-user. In the credit union world, however, the banking relationship is reciprocal. Both the bank and the customers are in business to service one another.

Credit unions are regulated by the National Credit Union Association (NCUA), which oversees the security of its members’ assets.

Requirements to Join a Credit Union

While most of us think of banks as the institutions that provide financial services, there are actually many other credit unions across the nation that provide banking and financial services to their members.

To be a member of a credit union, you have to fulfill certain requirements. As a credit union member, you enjoy some benefits, such as lower interest rates and lower fees for services. Another advantage is that credit unions are insured by the National Credit Union Administration.

As the main purpose of credit unions is to serve their members, no deposit is required in order to become a member – there is generally no minimum balance required, either. What’s more, members also can become owners of the organization, most of the time by being an active worker of a company that become a shareholder in the credit union. The credit union also invests in the local community as a whole.

If you are interested in becoming a member of a credit union, you need to review the requirements of different credit unions in your area. Compare these requirements to the types of accounts you use. If you have a particular credit union in mind, however, you must first have a checking account with them. If you don’t have a checking account, then you need to see if they offer a membership by social means, such as being a friend or family member to a current credit union member.

Why Choose a Credit Union?

Credit unions are very different from commercial banks. Credit unions are not-for-profit financial institutions with a mission of serving their members instead of their shareholders who are using their profits to increase their own wealth. Credit unions are member-owned and member-run organizations (often called CO-OPs) instead of being owned and operated by outside shareholders.

Because of their unique business structure, credit unions are more focused in their approach to lending than commercial banks – primarily focusing on consumer loans and mortgages – and can offer you some benefits that you won’t find at traditional lenders. For example, they are more flexible with loan terms and more willing to work with you to develop a payment schedule that’s right for you, including payment plans that last longer than a year. Furthermore, their membership requirements are more open and more inclusive than commercial banks, so credit unions are able to serve more people and can often be a good option for people with poor credit.

Credit Union Versus Bank – Which is Best for You?

Credit union versus bank – which is right for you? There are so many options in banking these days. It seems like practically every bank is advertising their “low rates” or “great service.” But which one is right for you?

The answer is both AND neither!

Credit Unions and banks are different animals, and they can have very different benefits. But you can use the best of both to cater to your specific needs.