What is a Credit Union?

Quick Definition of Credit Union:

Cooperative financial institution that is owned by its members and does not have stockholders. Because a credit union is not-for-profit, it returns earnings to members in the form of more competitive rates of return on accounts and loans, lower fees and improved services.

Familiar Services

Credit unions offer many of the same services you’d expect from any financial institution, such as savings and checking accounts, debit and credit cards, vehicle and mortgage loans, college loans, IRAs and more. Deposits in credit unions are fully insured up to $100,000 by the National Credit Union Share Insurance Fund – similar to banks’ FDIC insurance, except credit unions’ system is funded by credit unions instead of taxpayers.

Structural Difference

Credit union services can cost hundreds of dollars per year less than other financials due to how credit unions are structured and owned; credit unions do not have highly paid stockholder-owners expecting to earn hefty profits. Instead, credit unions have volunteer (unpaid) boards elected by the membership to look after members’ best interests. They are not-for-profit; meaning they return earnings to depositors (members) in the form of more competitive rates of return on accounts and loans, lower fees and improved services. The affordable services offered by credit unions ensure competition for financial services, which benefits all consumers.

Local Ownership and Control

Credit unions are owned and organized as cooperatives. For example, a cooperative grocery store allows people to pool their purchasing power to buy goods at more competitive rates. Credit unions are much the same – think of it as depositors pooling funds to save and lend to one another at more reasonable rates. Each deposit in a credit union (no matter how big or small) is an ownership share (checking accounts are called "share draft" accounts).

Because credit unions are member-owned, each depositor has one vote and can participate in annual meetings that affect how the credit union is run. This democratic control benefits the communities the credit unions are in. As bank mega-mergers put the fee-squeeze on consumers and push decisions about lending away from local communities, democratically controlled credit unions keep service levels high and decisions about service close to home.

The Credit Union Difference

Because credit unions exist not for profit but to serve their members, credit unions behave in ways banks don’t. For example, credit unions make small loans to consumers that many financials would consider “unprofitable” – loans for $1,000, $500, or even less. They’ll also open savings accounts for smaller amounts, and generally look for ways to avoid imposing fees. Because they aren’t focused on profit-making, credit unions also spend time with members to encourage savings and financial responsibility. Many offer consumer education and referrals for debt counseling to help members experiencing financial problems.

How To Join

Many credit unions are open to the community – unlike years ago when credit unions were chiefly made up of employees of sponsoring companies – thanks to recent changes in federal law affecting credit union membership. Currently, nearly two million Wisconsin residents belong to almost 300 credit unions, of which more than a third are open to the local community.