Credit Unions 101
What is a credit union? Simply put, a credit union is a not-for-profit financial institution that exists to
serve its members. Credit unions provide products and services to people who share something in
common, such as where they work or live, or even their nationality.
When a person joins a credit union, they are considered a member because they are one of the owners
and shareholders of the institution. The democratic nature of credit unions allows all members to have
an equal voice in the operation of the organization regardless of the amount of money each person has
on deposit.
Credit unions exist to serve members, not profit from them. All of a credit union’s profits are returned to
members in the form of fewer fees, lower rates on loans and higher rates on savings. Credit union
membership offers numerous benefits, including access to a variety of services like simple savings, home
equity loans, IRAs and more.
Just as banks have FDIC insurance, money at the credit union is also backed by the full faith and credit of
the federal government. The National Credit Union Share Insurance Fund (NCUSIF) insures a member’s
shares on deposit at a credit union up to a minimum of $250,000.
What is the difference between credit unions and banks?
While consumers may think that credit unions look like banks on the outside – and they do offer similar
products and services – they are very different on the inside. The chart below outlines the main
differences between banks and credit unions.
Credit Unions
Banks
Not-for-profit cooperatives
For-profit organizations
Credit unions return earnings to members in the
form of lower loan rates, higher savings rates, and
free or low-cost services.
Banks returns profit to shareholders
Customers have no ownership in the
corporation.
Credit unions are controlled by Board of Directors
elected by members.
Banks are controlled by stockholders who elect
the Board of Directors.
Most credit union board members are volunteers.
Bank board members are generally paid for
their service.
Credit unions are only allowed to serve a select group
of individuals that have a common bond such as
where they work, live or even their religion.
Banks can serve anyone in the general public.
How does everyone benefit from credit unions?
Credit unions provide numerous benefits to not only their members, but also to consumers and
communities. Keep reading to discover how credit unions make a difference for all Minnesotans.
Credit unions benefit members
Minnesota credit union members save approximately $100 million a year by using a credit union rather
than a bank. This savings works out to about $62 per a member and $118 per household. Credit unions
are able to offer these savings because they exist to serve members not profit from them. The profits a
credit union makes are returned to members in the form of lower fees, better rates on loans and more
services. (December 2013 – CUNA Research & Statistics)
Credit unions benefit consumers
Credit unions create competition in the financial services industry. When financial institutions are
forced to compete with one another, they must work hard to provide quality services at competitive
rates. It is the top priority for credit unions to improve services for members, not to increase profits for
stockholders. When credit unions provide exceptional service to members, they raise the bar for other
financial institutions. Ultimately all consumers benefit.
Credit unions benefit communities
Credit unions have a history of giving back to the communities they serve. Credit unions have repeatedly
proved that their philosophy of “people helping people” is an everyday way of doing business. All
around the state credit unions are working to provide communities the services and resources they
need. Through involvement in Toys for Tots, Habitat for Humanity, and other community organizations,
credit unions are actively demonstrating what it means to be a corporate citizen. Credit unions are also
actively involved in reaching out to underserved areas and providing services to those who are not
traditionally served by financial institutions. By teaching citizens how to properly build, maintain and use
credit wisely, credit unions are giving them the tools they need to achieve financial success and further
contribute to the Minnesota economy.