What Makes Credit Unions Unique? How They Differ From Traditional Banks

Your financial well-being starts with making an informed decision about your banking choices. There are plenty of traditional banks vying for your business as well as cutting-edge fintechs entering the market, but the former can be out of touch with your needs, and the latter is a minefield of unregulated risk. What makes credit unions unique is their approach to making your banking experience better.

Whether you're looking for essential savings and checking accounts, a mortgage or auto loan, or a competitive rate on a credit card, a credit union could very well be your best choice. Find a local credit union near you and discover the credit union difference.

What Makes Credit Unions Unique? How They Differ From Traditional banks

What Makes Credit Unions Unique?

Credit unions are focused on the needs of the community and deliver a personalized experience. If you've ever felt like a faceless, nameless account number when dealing with a big bank, you'll love how a credit union treats you — and your money. 

Here's everything you need to know about the credit union difference and why you should join one.

History of Credit Unions in the U.S.

Credit unions have existed in the United States since the early 1900s, driven by a need for community banking. The first formally recognized credit union in the U.S. was St. Mary's Cooperative Credit Association, which opened in Manchester, New Hampshire in 1909. More quickly followed. 

Since their inception, credit unions have focused on providing banking services to underserved communities. In the 1920s, for example, credit unions were often the only financial institutions serving historically black communities and groups of farmers. By the 1930s, more than 2,000 credit unions were operating across the United States, most holding a state charter.

In 1934, President Franklin Delano Roosevelt signed the Federal Credit Union Act into law. The newly created Federal Credit Union Division was placed under the Farm Credit Administration. 

That same year, the Morris Sheppard Federal Credit Union became the first federally chartered credit union in Texarkana, Texas. Today, nearly 5,000 federally- and/or state-chartered credit unions exist in the U.S.

Member Ownership and Governance

When you join a credit union, you're a member, not a customer. Instead of simply using services, you're actually a part owner of the credit union and have a say in how it's run. 

Credit unions are both owned and governed by their members. When you become a member, you gain the right to participate in the organization through direct voting. Every credit union member has equal ownership and a single vote regardless of how much money they have on deposit. Credit unions are true economic democracies.

Earnings are returned to member-owners in the form of patronage (lower loan rates and credit card rates, higher interest on deposits, and lower fees) and dividends on the common share purchased at the time of membership opening or invested at a later date.

All members participate in the election of the board of directors. Board members are responsible for setting organizational policies, approving credit union budgets, and directing strategic planning.

Credit union member ownership benefits include:

The moment you join a credit union, your member-owner benefits kick in. You'll be able to use your funds better while having a say in how your financial institution runs.

Not-for-Profit Status and Social Responsibility

A not-for-profit organization qualifies for tax-exempt status from the IRS. They are designed to provide a public benefit and further a social cause, and any profit must be shared among its members. 

Common not-for-profits include charities, foundations, universities, and hospitals, but credit unions also make the list. As socially responsible organizations, credit unions often open branches in underserved communities, making it easy for unbanked individuals to join and enjoy better financial security.

Credit unions' not-for-profit status and social responsibility allow them to provide better, more personalized care to the communities and individuals they serve.

Cooperative Business Model

Credit unions are considered cooperative financial institutions. Cooperatives are businesses owned and run by their “member-owners,” who all get a voice in how the business is run. Services or goods provided by a cooperative are designed to benefit and serve member-owners, not to provide profit for external shareholders.

Benefits of the cooperative business model include:

A common bond of identity or association typically defines credit union membership. You may be able to join your local credit union based on: 

Focus on Member Service and Financial Education

A big part of what makes credit unions unique is their focus on member service and financial education. Credit unions avoid high-risk lending and strive to help their members avoid financial risk.

Typical member service offerings by credit unions include:

Most credit unions offer access to educational services and financial advisors. Credit unions aim to educate and inform member-owners about their financial options and help them make good choices. They also likely offer various investment options to help your money earn more money. 

Additionally, your credit union might offer special online or mobile tools to help you budget or automatic transfers to make it easier to transfer money into your savings from each paycheck.

Lower Fees and Interest Rates

One of the biggest attractions of credit unions is their fees and interest rates, which are typically better than those traditional banks offer. 

As a not-for-profit cooperative organization, all profits go back to members. Some of the profits go into your savings account as dividends, and the rest go toward lowering your credit/loan interest rates and banking fees and paying more interest on account deposits.

For example, in Q4 2022, the average interest rate charged on credit cards issued by credit unions stood at 11.32%, compared to 12.35% at most banks. Five-year certificate of deposit (CD) accounts paid an average national interest rate of 1%, compared to 0.74% for banks.  

Additionally, banking fees are lower at credit unions vs. banks. In 2022, the average non-sufficient funds (NSF) fee was $28.36 at credit unions compared to $31.54 at banks, and the average credit card late was $24.56 at credit unions compared to  $34.18 at banks.

Further Resources on Credit Union Member Ownership Benefits

The credit union difference means you can do more with your money while enjoying a high level of personalized service. 

Become a Credit Union Member Today 

Taking advantage of credit union member ownership benefits is easy. Joining a credit union usually only costs between $5 and $25, and you’ll be on your way to enjoying low interest rates and fees, personalized service, and high earnings on your deposits. Find a credit union near you!

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Did You Know?

Many credit unions offer banking options for people turned down for accounts with big traditional financial institutions. Unlike large, shareholder-owned banks, your local credit union isn't locked into the same eligibility parameters and can give you a second chance, plus financial education to help you rebuild your confidence in money management.

Find the right Credit Union for you

There are more than 5000 credit unions to choose from across the U.S.