Credit Union Definition Economics Explained

Credit unions are member-owned cooperatives that pool their resources to provide financial services. They are not-for-profit organizations, meaning any profits are reinvested into the credit union for the benefit of its members.

A key characteristic of credit unions is their focus on serving a specific group of people, such as employees of a particular company, members of a union, or residents of a community. This focus allows credit unions to tailor their services to meet the unique financial needs of their members.

Credit unions are typically smaller and more community-focused than traditional banks, which can make them more approachable and responsive to their members' needs. By operating on a not-for-profit basis, credit unions can often offer more competitive rates and lower fees to their members.

A credit union is a type of financial institution that's owned and controlled by its members. They're non-profit cooperatives, which means they don't have shareholders to pay dividends to.

Credit unions have a primary purpose: to encourage members to save money. By doing so, they can offer loans to members at lower rates. In fact, credit unions have traditionally made loans to people of ordinary means.

One of the benefits of being a credit union member is that you can charge lower rates for loans. This is because credit unions don't have to pay profits to stockholders. Instead, they return earnings to members in the form of dividends or improved services.

Credit unions in the United States can be chartered by either the federal government or a state government. The states of Delaware, South Dakota, and Wyoming do not regulate credit unions at the state level, requiring a federal charter to operate.

Federal credit unions and 95% of state-chartered credit unions have deposit insurance of at least $250,000 per member through the National Credit Union Share Insurance Fund (NCUSIF). This insurance is backed by the full faith and credit of the United States government.

The National Credit Union Share Insurance Fund has a higher insurance fund capital ratio than the fund for the Federal Deposit Insurance Corporation (FDIC) as of December 2006.

Deposit insurance is a crucial aspect of banking, providing peace of mind for account holders. Savings deposits are insured up to $250,000 by the National Credit Union Administration (NCUA), an agency of the federal government.

This means that your deposits are protected in case the credit union experiences financial difficulties. The NCUA's insurance is a guarantee that you'll get your money back, no matter what.

In addition to the NCUA's insurance, VacationLand Federal Credit Union also has Excess Share Insurance (ESI), which privately insures members' funds for an extra $500,000. This brings the total insurance coverage to $750,000, giving you even more protection for your deposits.

Credit unions in the United States can be chartered by either the federal government or a state government. The states of Delaware, South Dakota, and Wyoming don't regulate credit unions at the state level, so a credit union must obtain a federal charter to operate in those states.

All federal credit unions and 95% of state-chartered credit unions have deposit insurance of at least $250,000 per member through the National Credit Union Share Insurance Fund (NCUSIF). This means that members' deposits are protected up to $250,000.

The NCUSIF is backed by the full faith and credit of the United States government and is administered by the National Credit Union Administration. This is a significant advantage for credit union members.

As of December 2006, the NCUSIF had a higher insurance fund capital ratio than the fund for the Federal Deposit Insurance Corporation (FDIC). This demonstrates the stability and security of credit union deposits.

The National Credit Union Share Insurance Fund insured more than $1 trillion in deposits at 5,785 not-for-profit cooperative US credit unions as of the end of 2016. This is a testament to the widespread use and trust in credit unions.

Both the NCUA and the FDIC are independent federal agencies backed by the full faith and credit of the US government, providing an added layer of protection for depositors.

Membership in some organizations is restricted to specific individuals, such as those with a particular profession or occupation.

For example, the American Medical Association has strict membership requirements to ensure only qualified medical professionals join.

Membership restrictions can be based on factors like age, residency, or education level, which can limit the pool of potential members.

The American Bar Association, for instance, requires applicants to be a U.S. citizen and have a law degree from an accredited institution.

Some organizations may also have a limited number of membership slots available, which can make the application process more competitive.

In the case of the National Academy of Sciences, only a small percentage of scientists and engineers are elected as members each year.

The first credit union in the United States was St. Mary's Bank of Manchester, New Hampshire, founded on November 24, 1908. It was established by French-speaking immigrants from the Maritime Provinces of Canada.

Pierre Jay and Edward Filene played a crucial role in establishing enabling legislation in Massachusetts in 1908, paving the way for the growth of credit unions in the US. This was a significant turning point in the history of credit unions.

The number of credit unions reached its peak in 1969, with 23,866 institutions and total assets of $16 billion.

The history of credit unions is a fascinating story that spans over a century. The first credit union in the United States was St. Mary's Bank of Manchester, New Hampshire, which was founded on November 24, 1908.

Pierre Jay and Edward Filene played a crucial role in establishing enabling legislation in Massachusetts in 1908, paving the way for credit unions to emerge in the US. This legislation was instrumental in the growth of credit unions across the country.

In contrast to credit unions in Germany or Quebec, most US credit unions emerged from an employer-based bond of association, allowing them to use future paychecks as collateral. This unique approach helped credit unions thrive in the US.

The Credit Union National Extension Bureau, the forerunner of the Credit Union National Association, was formed in 1934 as a confederation of state leagues. This marked a significant milestone in the development of the credit union movement in the US.

Dora Maxwell and Louise McCarren Herring were two key figures in the establishment of credit unions, with Maxwell helping to establish hundreds of credit unions and programs for the poor, and Herring earning the title of "Mother of Credit Unions" for her work in forming and ensuring the safe operation of credit unions.

By 1969, the number of credit unions in the US had reached its peak, with 23,866 institutions and total assets of $16 billion. Today, one in every three Americans is a credit union member, a testament to the enduring success of the credit union movement.

Credit unions have a unique approach to serving underserved and low-income areas. Unlike banks, which were criticized for redlining in the 1970s, credit unions are not subject to federal "community reinvestment" requirements.

Credit unions are exempt from the Community Reinvestment Act, a law that encourages banks to provide services in low- and moderate-income areas. This is because credit unions are inherently community-focused, with a mission of "people helping people".

In 2006, credit unions approved a higher percentage of mortgage applications from low- and moderate-income individuals compared to other mortgage lenders. 69% of mortgage applications from these individuals were approved by credit unions, compared to 47% by other lenders.

Credit unions also approved a higher percentage of mortgage applications from minority members, at 62% compared to 51% for other lenders. This shows that credit unions are committed to serving diverse communities.

Credit unions tend to have limited international banking services compared to large national banks.

Banks often offer a wider range of financial services, including checking, savings, debit/credit cards, and loans.

Credit unions may not offer international banking services and products as commonly as national banks.

National banks dominate the list of best credit cards, with credit union cards focusing more on lower interest rates than rewards and perks.

Credit unions typically pay higher interest rates on deposits and charge lower interest rates on loans than banks. This means you can earn more on your savings and pay less on your loans.

A credit union's policies governing interest rates are set by a volunteer Board of Directors elected by and from the membership itself. This ensures that the interests of the members are represented.

Credit unions often have a higher "cost of assets" than commercial banks, which can be a challenge for them to stay solvent. However, their revenues from loans and investments must meet or exceed their operating expenses and dividends.

In a comparison from Q1 2023 through Q3 2024, credit unions offered higher returns on certificates of deposit and money market accounts while lower rates on loans and other credit products. Banks offered higher average returns on interest checking and savings accounts.

Credit unions tend to provide more competitive interest rates on loans and credit products compared to banks for the following:

However, they tend to offer significantly lower rates on average for credit cards and auto loans. It's essential to compare rates and terms before making a decision.

Credit unions tend to score lower for various financial services available, including checking, savings, debit/credit cards, and loans, compared to banks.

Banks often offer a wider range of services, such as international banking options, which can be beneficial for those who frequently travel or live abroad.

Credit union cards typically focus on offering lower interest rates, whereas national banks dominate the list of best credit cards, prioritizing rewards and perks.

Mobile app satisfaction is on par with website satisfaction, but still room for improvement exists. Customers gave banks a slightly higher score for mobile app quality and reliability in the ACSI survey for 2024.

National credit unions offer excellent digital banking options, and it's worth investigating their mobile banking technology.

Customer service is a vital aspect of any banking experience. Banks and credit unions have similar customer service scores, with banks slightly stronger overall.

The American Customer Satisfaction Index's 2024 survey shows that both banks and credit unions have high scores in courtesy and helpfulness of tellers or other staff.

Banks, particularly regional and community banks, stand out with the highest-ranked customer service scores.

Banks generally receive higher customer satisfaction ratings for their ATM and branch networks. National banks lead in customer satisfaction with the highest ratings for both ATM and branch numbers and locations.

A credit union's branch network is typically smaller than a bank's, with fewer branches on average. For example, the nation's largest bank, Chase, has over 4,700 branches.

To make up for fewer branches, some credit unions have joined the CO-OP Shared Branch network, which offers access to over 30,000 ATMs and 5,000 shared branches nationwide.

Fees can be a major factor in choosing a financial institution. Credit unions tend to charge lower fees than banks.

The average NSF fee for credit unions is $28.36, compared to $31.24 for banks. This can add up over time, so it's worth considering.

Credit unions also have lower average credit card late fees, at $24.56 compared to $34.18 for banks. This can help you avoid unexpected charges.

However, mortgage closing costs are another story. The average cost for credit unions is $1,151, while banks charge $1,361. This can be a significant expense, especially if you're planning to buy a home.

Here are some key fees to consider:

Carefully reviewing fees is essential to finding the right account for you.