Credit Unions offer financial products and services to meet the financial needs of their members. Typical credit union products and services included savings accounts, checking accounts, personal loans, car loans, etc. Some credit unions are so small, they only offer the most basic of services. Larger credit unions tend to offer most products and services you can find at any bank, such as mortgages, credit cards and certificates.
The big difference between a credit union and a bank is that a credit union is Not-For-Profit. Credit unions are chartered and tend to have requirements, such as offering services to the underserved, people who banks would normally turn away, because theyâ€™re not seen as profitable. Many times credit unions must restrict service to certain organizations and businesses as part of their charter. Because they following these restrictions, credit unions can enjoy tax benefits that banks donâ€™t receive. Itâ€™s a huge controversy, and banks keep trying to have those tax benefits removed from credit unions to â€˜level the playing fieldâ€™. We think it’s a load of hooey. Let banks start serving the underserved and switch to a non-for-profit model, and then they can complain.
A credit union is also not a publicly traded company, but rather itâ€™s a cooperative. This means the people who are the customers are also the owners. Credit Unions call their customers Members. In order to get a credit union membership, you are required to deposit a small amount of money in your savings account. This money is your share of the credit union. In effect, you become an owner of the credit union. Because of your funds, the credit union has the money it needs to make loans and earn interest. When you leave the credit union, you get your original deposit back.
Membership is available if you work for one of the participating companies or belong to a participating organization. You can also qualify if you live or work in one of the underserved communities. A credit union can sometimes have a local charter, which means that anyone who lives, works, attends school, or worships within a certain mile radius of the headquarters can be a member. You may also become a member if one of your family members is already a member. Usually once you are a member, you are always a members even if you leave the company or organization under which you originally qualified.
Still Need Profits to Survive
A credit union has to earn profit in order to keep its doors open and continue to serve its members. Credit unions cannot keep more than about 10% of their profit. Anything over that amount is returned to its members in the form of dividends, reduced fees, and lower loan rates. So, when a credit union is successful, its own members benefit. This helps ensure that the decision a credit union makes are designed to create a winning situation for both the credit union and its members.
With lower fees and better loan rates, itâ€™s no surprise that credit unions are referred to as the best kept financial secret. Why is it a secret? Itâ€™s not a secret. There is just a general lack of awareness about credit unions and how they are different than banks. Plus, people perceive the membership aspect as snobbish, whereas itâ€™s really just a compliance requirement.