A credit Union is a not-for-profit customer owner cooperative financial institution.
What is a Credit Union and How it works?
In simple terms the customers/members democratically control a credit union and this is how credit unions are being managed until today.
Each member has the right to vote to and elect a volunteer board of directors regardless of their savings or shares in a credit union.
The sole purpose of a credit union is to maximize the economic benefits of its members by providing financial services such as small business loans, checking accounts and deposit accounts at lower fee and better rates.
Credit Union systems vary significantly globally ranging from few hundred members and less assets under management to a few hundred thousand members and several billion US dollars under management.
All Credit Unions have a common mission to help its members succeed financially.
Millions of Americans to date have borrowed loans from their credit unions to finance their car, home or a child’s education as it is extremely affordable to them compared to a bank loan.
History of Credit Union in the United States
- The first credit union in the United States was the Mary’s Bank Credit Union of Manchester, New Hampshire foundedon November 24, 1908.
- Then later in the year 2010, Industrial Credit Union was setup by the Woman’s Educational and Industrial Union served all the people in the greater Boston Area.
- The oldest statewide credit union was setup in the year 1913 in the United States.
- According to the NCUA (National Credit Union Association) at present there are over 6000 Credit Unions in the United States that vary in size and services.
- As per the CUNA(Credit Union National Association) report, 3.7 million Americans have joined credit unions in the year 2015.
- As per the world council data today there are 68,000 credit unions in 109 countries that collective serve 235,000,000 members and work towards improving their lives financially.
- United States has the highest number of credit union memberswith over 110 million members with Poland being the lowest with 2.2 million members.
What is a Credit Union how it differs from a Bank?
Credit unions also work like banks. They offer deposit accounts, checking accounts, credit cards and offer loans but at much lower rates compared to the banks. Becoming a member of a credit union is simple and easy.
However, membership requirements are based on your occupation, area where you live, causes or associations that you are involved with.
Since Credit unions are not-for-profit institutions they do not have stockholders that receive any compensation or quarterly dividend and this enables credit unions to pass on the benefits to its members by keeping the fees low and lower interest rates on small business loans.
Speaking in simple terms as a member of a federally insured credit union you can expect much better services compared to a big bank because they are not-for-profit financial institutions the net income is applied first to adequacy requirements and then the excess surplus is managed by offering higher interest rates on savings and lower interest rates on loans.
Normally, you have to pay a onetime membership fee and make a deposit of up to $25 if your membership is approved with a credit union.
Also, there’s zero to very low monthly maintenance fee on checking accounts offered by credit unions compared to the banks. However, only a member can deposit or borrow funds from a credit union.
Benefits of joining a Credit union
There are plenty of reasons for joining a credit union as a small business owner or an individual. Being a member of a credit union you save a lot of money.
- In a survey conducted by the CFI group in 2015, it was found that customers were highly satisfied with the credit unions achieving an overall satisfaction score of 87 out of 100 compared to the banks.
- Similar to getting higher interest rates on your deposits and lower interest rates on loans, credit unions also offer credit cards at much lower interest rates compared to the banks.
- You may find a sense of personal touch to the services being a member of a credit union as the customer service is at par compared to the banks.
- Your deposits are always insured up to $250,000 per ownership category the same way as your bank deposits by the National credit Union share Insurance fund in case of a failure.
- During the financial year 2014 – 2015, the credit union members across the United States have saved nearly $8.5 billion.
- Similar to the banks the Credit unions also offer a wide network of over 30,000 surcharge free ATMs across the United States.
- Over 5000 shared branches across the nation for convenient in-person banking experience.
Credit Union Associations
You may find large banks advertising often about their nationwide ATM network and thousands of easily accessible branches and in order to level the playing field Credit Unions have formed associations among themselves to provide improved services to the members.
CO-OP Financial Services is one such credit union owned interbank network in the US that provides ATM network and shared branching services to credit unions across the United States, with few locations in Canada and US navy bases.
The first CP-OP network was established in the year 1981 when 20 credit unions across California had united their 32 ATMs.
The other Associations such as WOCCU (world council of credit unions) play a significant role in assisting and integrating credit unions and other related institutions for the economic and social development of the people and communities.
SBA (Small Business Administration) USA also has tied up with the Credit Unions to empower local entrepreneurs and local start ups to provide Small Dollar Loans to empower them financially.
Between 2011 – 2016 the credit unions have distributed a total of $1.2 billion SBA loans to the local communities and members with which the credit unions work.
Is Credit Union for You?
Whether you an individual or a small business owner a credit union can be beneficial to you over a bank when it comes to savings, better rates on loans and higher interest on deposits.
Even if you are a customer of any of the banks you can apply for a membership with a credit union in your area and reap the benefits of both when it comes to your financial and banking needs.
A credit union is a good choice for Small Business Owners considering the Small Business Loans that available at much lower interest rates that can help you cover your working capital needs or equipment and inventory purchase requirements and the repayment tenure is also much flexible compared to the banks.
Check with your nearest Credit Union branch today to find out more about their membership requirements and take a better step towards financial freedom.
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