Most people never notice the differences between credit unions and banks. However, as an educated consumer looking to get the best deals (that is you, right?) you should know how the institutions differ. By reading these fast facts about credit unions, you’ll know what to expect.
Who Owns a Credit Union?
A credit union is an institution owned by the “members” or customers. Contrast this with banks where the customers are just customers. Banks answer to profitability – usually shareholders own a bank and expect financial performance from bank management.
Credit unions are nonprofit organizations that strive for service over profitability. Note that this does not mean they are charities. Credit unions must make sound financial decisions, collect revenue, pay salaries, and compete with other institutions.
Who Runs a Credit Union?
If all the customers own the credit union, then who has time to run the place? Credit unions actually have the same types of personnel as banks. Upper management consists of a board of directors who makes decisions on credit union operations. This board is composed of elected volunteers. They don’t do it for pay – rather, they’re credit union members who want a say in how the place is run.
Who Can be a Credit Union Member?
So, what does it take to be a member of a credit union? It depends on the credit union. Credit unions simply have to limit their offerings to people who have a common bond. This bond may be the geographic community, a workplace, a religion, or other type of bond.
Credit unions cannot simply offer their services to anybody who has a pulse. Instead, they are limited to working with those who share the common bond. If a credit union fails to limit membership in this way, they risk losing their status as a credit union.CU Service Centers.
What Products do Credit Unions Offer?
In its simplest form, a credit union gets money from its customers and loans that money out to other customers.
Credit unions will typically offer the same products and services as larger banks. However, some credit unions will choose not to offer every product and service out there. The reason is that these credit unions do not do the same amount of volume that larger banks do. Banks can afford to have “loss-leaders” or products that get customers in the door. Credit unions will more likely only offer the products and services that a large portion of the membership is likely to use.
Remember how we talked about the members owning the credit union? Some credit union products have different names than their banking counterparts. Your deposits are called shares because they represent ownership (like shares of stock) in the institution.
How Competitive are Credit Unions?
Small credit unions give the big banks a run for their money. Because credit unions tend to focus on service over profitability, the rates can be better at a credit union. If you are a rate shopper, you may not find the attractive CD sales as often. However, a long-term relationship with a good credit union can be profitable.
Remember that some credit unions do not offer the whole universe of products and services that larger banks will. This can give the banks an advantage if you happen to want those particular services.
Is Your Money Safe at a Credit Union?
Credit union deposits are insured very much like your bank deposits. The organization that insures the two types of institutions is different. However, as long as you use a federally insured credit union, the quality of insurance is the same - backed by the full faith and credit of the US government.
If your credit union is not federally insured, you still might be protected and your money might be safe, but NCUSIF insurance is best. For more discussion, read about credit union safety.Now that you know all about credit unions, learn how to find a credit union and how to switch your bank accounts to a new institution.