When it comes to financial institutions, you may choose to keep your money in a bank, savings and loan or a member-owned credit union. While credit unions typically operate on a smaller scale than most banks, they offer unique advantages to their members in the form of lower fees, better interest rates and member control.
History
According to the National Credit Union Administration (NCUA), credit unions first took shape in Germany in the mid-1800s. These credit unions were originally organized as a way of helping poor farmers purchase livestock and necessary equipment. The credit union first came to the U.S. in 1909, in Manchester, New Hampshire.
In 1934, the Federal Credit Union Act was established which chartered and monitored the growing number of credit unions across the country. In 1970, the NCUA was created to insure member deposits in credit unions. According to the NCUA, there are approximately 7,950 active credit unions in the United States, with a total membership of approximately 90 million individuals.
Structure
A credit union is a non-profit cooperative that is owned by its members and operated by volunteer boards. Credit unions may be established for members of specific professions, such as teachers or the military, or they may be open to the general public. While banks are typically insured by the Federal Deposit Insurance Corporation (FDIC), credit unions are federally backed by the NCUA.
Function
The function of a credit union is similar to that of other banking institutions. With a credit union, you're able to open a checking or savings account, get a personal loan or establish a line of credit, finance an automobile or a mortgage loan or purchase financial products, such as certificates of deposit. They may also provide members with financial advice and education.
Benefits
As a member of a credit union, you may benefit in a number of ways, including lower interest rates, better loan terms, more flexible credit and fewer fees. You may enjoy a better return on certain financial products, such as certificates of deposit or money market accounts and your deposits are insured up to $250,000. The size of some credit unions may also contribute to a more personal banking experience compared to larger banks.
Considerations
If you're thinking of joining a credit union, be aware of any eligibility requirements they may have for opening a new account and the availability and convenience of branch and ATM locations as many credit unions operate within a smaller range than national banks. Also, consider how long the bank has had their charter and their overall structural stability and financial health.
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