Member Owned and Operated
A credit union is a nonprofit financial cooperative owned and operated by its members. The members pool their financial assets to provide funds for loans and a variety of other financial services. The essential difference between credit unions and other financial institutions is that credit union services are offered to members at rates that are frequently more favorable.
Credit union cooperatives exist to serve their members. As not-for-profit institutions, they are unique in the financial world. They are owned and directed by their members and are dedicated to the credit union motto: Not for profit, not for charity, but for service. That is the key difference between credit unions and other types of financial institutions.
CU Earnings, Your Benefit
A primary purpose of credit unions in furthering their goal of service is to encourage members to save money. Members pool their assets — that is, their money — to form the basis of the credit union's other financial services. One of these services, and another purpose of a credit union, is to offer loans to members.
Traditionally, credit unions have made loans available to people of ordinary means, thus, members who may not be eligible for loans elsewhere may be able to get a loan at their credit union. Credit unions can charge lower rates for loans (in addition to paying higher dividends on savings) because they are nonprofit cooperatives. Rather than paying profits to stockholders, credit unions return earnings to members in the form of dividends or improved services.
History of Credit Unions
In the 1840s, working class people in Europe began forming cooperatives of various kinds to assist themselves through economic hard times. Faced with crop failures, famine, and shortages of goods, people tried new experiments to survive. Formed by a group of workers in Rochdale, England, one of the most successful early cooperatives — Rochdale Society of Equitable Pioneers — was a store which sold shares to members to raise capital to buy goods at lower than retail prices, and then sold the goods at a savings to members. The Rochdale cooperative became the model for later cooperatives elsewhere in Europe and the world.
Credit cooperatives were first established in Germany around 1850. This idea spread throughout Europe and reached North America in the late 1890s. In 1901, the first credit cooperative opened in Quebec, Canada.
The credit cooperatives were slow in developing in the United States at first. Edward Filene, a Boston department store owner and philanthropist in the early 1900s was one of the first American leaders to foster the credit union movement.
The first credit union established in the United States was at St. Mary's Parish in Manchester, New Hampshire, established April 1909. The past 100-plus years have seen tremendous growth in the U.S. credit union movement.
Credit Union Advantages
| Credit Unions | Banks | |
|---|---|---|
| Insurance | National Credit Union Administration (NCUA), an agency of the federal government, protects member funds up to $250,000. | The Federal Deposit Insurance Corporation (FDIC) protects bank customer funds up to $250,000. |
| Your Role | You are a member and owner of a credit union. | You are a customer with no ownership interest in the institution. |
| Income | Not for profit. When the credit union earns income, it is invested back into the organization in the form of higher savings rates and lower loan rates. | For profit. Declared earnings are paid to the stockholders. |
| Board of Directors | Credit union board members are volunteers who are elected by the membership. As an owner, you have one vote in electing board members. | Bank board members are paid and are selected by current directors or by large stock acquisition. Customers do not have voting rights. |
| Products | Credit unions focus on consumer loans and member savings, as well as services needed by the membership. | Banks focus on commercial loans and accounts that generate significant income. |
| ATMs & Services | To bring convenience and savings to its members, credit unions cooperate with other credit unions and share resources including an extensive ATM network. | Competition between banks prohibits sharing of resources. |
