Credit Unions: Financial Services Designed to Serve You
Despite millions of Americans being part of credit unions, many still don’t quite understand what they are.
In simple terms, credit unions are non-profit financial cooperatives aimed at serving specific groups of people. These groups might work for the same company, belong to the same association, or live in a particular area. Local credit unions are those that help anyone living or working within a specific region, while those serving employee groups or associations are called SEG-based (select employee group) or sponsor-based credit unions.
Currently, there are over 10,000 credit unions in the U.S., serving more than 82 million members. Because they operate on a non-profit cooperative model, credit unions often offer better savings and loan rates, and typically have lower fees or no fees at all. Surveys frequently rank credit unions highly in customer satisfaction compared to other financial institutions.
Credit unions run on democratic principles, meaning they are owned and controlled by their members. This “people-helping-people” philosophy ensures that each member has an equal vote in electing the board of directors, regardless of how much money they have deposited. This is different from mutual banks where the number of votes correlates to the amount deposited, or publicly-held banks where voting power is determined by the number of shares owned.
Only members can serve as directors of credit unions, and these positions are usually unpaid and voluntary. This contrasts sharply with other financial institutions where board members are paid and work in the interest of external owners. Volunteers are crucial for credit unions, with over 129,000 Americans offering their time as board members or in other supporting roles. Since credit unions don’t have external shareholders, any profits made are given back to the members in the form of savings dividends, lower loan rates, or additional services.
Credit unions mainly provide consumer loans, with some offering business and residential real estate loans to their members. Deposits at federally-chartered and most state-chartered credit unions are protected by the National Credit Union Share Insurance Fund (NCUSIF), which is managed by the National Credit Union Administration (NCUA). Like the FDIC coverage for banks, the NCUSIF guarantees deposits up to $250,000 and is backed by the U.S. government.
The NCUA, an independent federal agency, oversees federally chartered credit unions, while state credit union departments regulate those with state charters. Credit unions themselves fund the NCUA’s regulatory activities, so no taxpayer money is used. They also have to comply with laws enforced by various bodies like the Federal Reserve, IRS, FTC, Department of Justice, and others.
Because they are member-owned, democratically run, and non-profit, credit unions are exempt from federal income taxes. Most states also waive state income and most sales taxes for them. However, credit unions do pay payroll taxes, property taxes, and some sales taxes, and members are taxed on their credit union dividends.