What is a Credit Union?
Credit unions are often mentioned alongside banks, but if you have never used one, the difference can be confusing. You may hear terms like "member-owned," "financial cooperative," and "membership eligibility" without anyone actually explaining what those things mean.
The easiest way to understand a credit union is to think of it as another type of financial institution. You can use a credit union for many of the same things you would use a bank for, including checking and savings accounts, debit cards, direct deposit, loans, credit cards, and online banking.
The biggest difference is how the institution is structured and who it serves.
What Is a Credit Union?
A credit union is a financial institution owned by its members. When you qualify for membership and open an account, you become a member of the credit union.
This is different from a traditional bank, which is generally owned by shareholders or investors. At a bank, you are a customer. At a credit union, you are a customer and a member-owner.
That does not mean you walk into a credit union and suddenly have control over what happens with your individual account. The credit union still has employees, management, policies, and a board of directors. Membership ownership is part of how the organization is structured.
The term "financial cooperative" refers to this member-owned structure. The credit union exists to provide financial services to its members, rather than being structured around outside shareholders owning the institution.
Credit unions can offer many of the same products you would find at a bank. You may be able to open a checking account, save money, deposit checks, use a debit card, receive direct deposit, apply for an auto loan, get a mortgage, or apply for a credit card.
The exact products and services vary from one credit union to another.
Who Can Join a Credit Union?
Unlike a bank where you can generally open an account as long as you meet the bank's requirements, credit unions have membership requirements.
These requirements are based on the credit union's field of membership. Depending on the institution, you may qualify because you live in a certain area, work for a particular employer, attend a certain school, belong to a particular organization, or have a qualifying family connection.
Some credit unions have very broad membership requirements, while others are designed to serve a specific group.
You may also see credit unions that allow you to become eligible by joining an affiliated organization. That does not necessarily mean you have to already belong to that organization before looking into the credit union. However, you should check the credit union's actual membership requirements before applying.
Once you become a member, you can generally continue using the credit union even if your circumstances change, depending on its membership rules.
Credit Unions vs. Traditional Banks
The biggest differences are ownership, membership, and how each institution operates.
A bank is generally owned by shareholders. A credit union is owned by its members. That difference can affect how each institution approaches its products and services, but it does not mean every credit union will have lower fees or better rates than every bank.
For example, one credit union may have a lower auto loan rate than the banks you compare, while another may not. One may offer a checking account with no monthly maintenance fee, while another may have fees. The same is true for banks.
You also need to consider access. A large traditional bank may have branches and ATMs across multiple states, while a smaller credit union may have only a handful of branches. However, many credit unions participate in shared branching or ATM networks that allow members to access services outside their own credit union's locations.
Technology can also vary. Some credit unions have mobile apps and online banking with many of the same features offered by large banks. Others may have fewer digital features.
In other words, the label "credit union" tells you how the institution is structured, but it does not tell you everything about the actual account you would be getting.
Pros and Cons of Credit Unions
Credit unions can be a good fit for some people, but there are tradeoffs to consider. Instead of assuming that one type of institution is better, compare what matters to you.
Potential Advantage | Potential Disadvantage |
Member-owned structure | You must meet membership requirements |
May offer competitive loan rates | Some credit unions have fewer branches |
May offer lower fees on certain accounts or services | ATM and branch access may depend on shared networks |
May offer competitive savings rates | Some may have fewer products or services than large banks |
Members may have voting rights | Technology and mobile banking features can vary |
Can offer personal service, particularly at smaller institutions | Customer service hours may be more limited |
Federally insured credit unions have NCUA share insurance, subject to applicable coverage limits | Not every credit union is federally insured, so you should verify its insurance status |
May have a strong connection to a particular community, employer, or organization | Membership eligibility may limit who can join |
The important word in this table is "may." Credit unions are not all the same. A credit union's rates, fees, technology, branch access, and customer service can differ just as much as they can between banks.
What About Your Money?
The fact that a credit union is not a traditional bank does not mean your money is simply sitting there without protection.
Federally insured credit unions have share insurance through the National Credit Union Administration (NCUA), subject to applicable coverage limits. The NCUA is a federal agency that administers the National Credit Union Share Insurance Fund.
The terminology is slightly different from banking. At a credit union, your deposits are often referred to as "shares" because of the member-owner structure. You may see terms such as "share savings account" instead of simply "savings account."
That does not mean you are buying stock in the credit union like you would buy shares of a company. It is part of the cooperative structure that makes you a member-owner.
Before opening an account, verify whether the credit union is federally insured and understand the applicable insurance coverage limits.
Final Thoughts
Choosing a bank or credit union is one of those decisions that can seem bigger than it actually is. You do not have to find the institution you will use for the rest of your life. You just need an account that fits the way you manage your money right now and does not create unnecessary problems or fees.
Take the time to compare the accounts themselves, not just the names on the buildings. Look at what you will pay, how you will access your money, what services you actually need, and what requirements you will have to meet. A few minutes spent comparing those details can save you from discovering months later that your "free" account is not actually free or that your bank does not offer something you regularly need.
And remember, you can change your mind. If your financial situation changes or your current account stops working for you, you can look at other options and move your banking elsewhere.
Up Next: You know what to look for in a financial institution. Now it is time to look at where you actually want to do your banking. The next article compares online banks with traditional banks, including the differences in branches, ATMs, fees, technology, and customer service.
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