How Credit Unions Prioritize Members Over Profits
The opposite of a detached, bureaucratic corporation, the ownership structure of credit unions puts all the power in the hands of their members. Unlike traditional banks, credit unions operate as not-for-profit financial co-ops that put people over profits. The result? A fantastic financial experience.
Learn all the credit union membership benefits that make joining your local credit union an excellent choice. Let's break down the value differences between credit unions and banks, including what credit unions are, how they work, and why credit unions are continually incentivized to prioritize members over profits.
What Are Credit Unions and How Do They Work?
A credit union is a not-for-profit financial institution owned and operated by its members. Credit union members typically have a common bond that makes them qualified for membership, whether it's working for the same employer, being a part of an association, or even just living in the same community.
Credit unions offer checking and savings accounts, loans, and credit cards, similar to a traditional bank. The National Credit Union Share Insurance Fund insures deposits, meaning your money is safe. A credit union's ultimate goal is to meet its members' financial needs rather than cater to the profit requirements of outside shareholders.
The Importance of People in Credit Unions
People are paramount in the ownership structure of a credit union. Because members have a direct stake in their success, credit unions shape operations and policies to benefit all members.
To become an owner within a credit union, you first must become a member. Each credit union has its own application criteria. Once you join, your membership grants your rights and privileges, including the ability to vote in board of directors elections and participate in major decision-making for the credit union's policies and direction.
It's a democratic life inside a credit union, and accountability is the name of the game. The board of directors oversees operations, but the members vote them in. So if they're not meeting the needs of the membership body, they're out. Members get to provide input on the types of financial services offered, interest rates, fees, and other important decisions.
Unlike a traditional bank, any surplus income the credit union generates is returned to its members with higher interest rates on savings accounts, lower interest rates on loans, or reduced fees.
How Credit Unions Benefit Their Members
Credit unions stand out because they're the perfect mashup of personalized service and great rates. It's a community mindset. Credit unions prioritize the financial well-being of their members, which translates to more support not only for your checking and savings but also when you're applying for loans. You're not a number. You're a member.
Credit unions often have lower operating costs than traditional banks, so a smaller footprint and fewer branches means less overhead and more room to offer competitive rates. The localized approach of a credit union also gives it a better understanding of the unique needs of its membership so financial products can be tailored to meet those needs.
The member-friendly approach also shows up in how they assess loan risk. When evaluating rates and lending approval, credit union lenders often consider factors beyond credit scores, such as the person's relationship with the credit union, employment stability, and local economic conditions.
Credit unions want to empower their members. Financial education is another cornerstone of their operations that helps members make informed financial decisions. Members will often gain access through workshops and seminars about budgeting, saving, investing, and credit management at no cost. Some credit unions offer one-on-one financial counseling to help members create personalized plans and strategize their economic pathway.
In today's market, credit unions are learning to lean on technology and online resources like articles and videos to help members expand their financial knowledge. That also means embracing online banking so members can pay bills, check account balances, and send money from anywhere.
It's a community, and they’re looking out for you.
Credit Unions vs. Traditional Banks
While traditional banks are motivated by profit maximization, credit unions are driven by a sense of community. Here are five main differences between credit unions and traditional banks:
1. Ownership
The most significant difference is that credit unions are member-owned co-ops, while shareholders typically own traditional banks. That means credit union members elect a board to represent their interests, while conventional banks don't put board participation up for a vote beyond their shareholders.
2. Governance
Your vote is your voice at a credit union. You'll get a say in elections of the board of directors as well as major decisions about policies and direction. It's accountability all the way. With traditional banks, the board of directors is typically appointed by the bank's shareholders, and customers are not directly involved in the decision-making process.
3. Profit focus
Studies show credit unions offer better rates across almost every financial product. Because credit unions are owned by the members they serve, money flows in more of a cycle. The primary goal of a credit union is to put any surplus income back into benefits for members by practices like increasing interest rates on savings accounts, lowering loan interest rates, or reducing fees. Traditional banks serve their customers, but their profit motive is to serve the shareholders. Any surplus at a conventional bank comes to the shareholders through dividends. That doesn't mean traditional banks don't offer benefits and rewards programs, but their priority is shareholder returns.
4. Membership eligibility
Traditional banks are typically open to anyone who wants to open an account. You don't have to live in a location or be a part of an organization to join because they typically just want as many customers as possible. Credit unions operate with a sense of community, often meaning you must live in a certain area, work for a specific employer, or belong to an association.
5. Service
When you walk into a credit union, you're more than an account number. Personalized service is a top priority for credit unions. The staff get to know their members personally to give the best advice and product options. Credit unions are known for their flexible lending. While traditional banks usually have a more extensive network of branches and ATMs, credit unions still tackle accessibility by participating in shared branching and ATM networks.
Join a Credit Union
There are thousands of credit unions in the United States, so it's just a matter of finding the best fit. You might be eligible through your employer or a family member. But if not, there are geographic credit unions that serve anyone who lives, works, worships, or attends school in their area. You might also be able to join through your place of worship, school, labor union, or even a homeowner's association.
It generally costs $5 to $25 to purchase one par value share at a credit union and establish a membership account. However, each credit union has its own requirements.
Further Resources on the Ownership Structure of Credit Unions
Credit unions were established to put people over profits. It's the co-op of the financial industry and an excellent alternative for people who want a more personalized banking experience. Check out these resources for more information on credit union membership benefits:
- Know your money is protected. Learn more about how credit unions are insured and structured.
- Become a credit union expert. Are you curious about how credit unions came to be? Check out the history of credit unions that dates back to the early 1900s.
- Discover how credit unions can help. Get answers to questions about everything from saving and investing to dealing with debt and planning for retirement.
The Co-Op Putting People Over Profits
Financial stability can play a role in a person's overall well-being. While a financial institution should be all about the numbers, it shouldn't treat you like one. The ownership structure of credit unions not only puts people over profits, but it also translates to a better experience with lower rates and higher returns.
Find the best fit, and find your financial community. Explore all the credit union membership benefits your local credit union has to offer!
