What is a Credit Union
Many different people ask what is the difference between a credit union and a bank. There is not a lot of difference but this article should straighten out any questions you may have regarding the difference between your local credit union and your local banks.
A credit union is a nonprofit financial cooperative that makes personal loans and offers other consumer-based banking services to people sharing a common touch, usually employment at the same company or institution. Deregulation in the banking industry since the 1970s has enabled credit unions to provide many of the identical banking services as the big traditional banks, savings banks, and savings-and-loan institutions.
Federally chartered credit unions can write residential mortgages and issue credit cards. Many credit unions also offer interest-bearing transaction accounts. Credit unions can charge below-market rates on lending instruments while paying higher rates of return to savers with savings accounts, as they are exempt from federal and state taxes. This is a very important factor when it comes to credit unions.
In 1983, membership eligibility was greatly relaxed, allowing credit unions to solicit accounts from a member’s immediate family, significantly expanding potential membership in credit unions. Credit unions get their operating funds from shares purchased by individual owners, who are called members, and pay dividends out of their earnings.
The national credit Union administration, an independent federally funded agency chartered in 1970, is the primary regulator of the national credit unions. It also operates the national credit Union share insurance fund, which offers share insurance up to $100,000 per account for qualifying federal and state credit unions, and the central liquidity facility, a lender of last resort for credit unions.
I hope this clears up some of your questions regarding the difference between a credit union and the typical bank. Fundamentally you’re a member of a credit union and a customer of a bank or financial institution. Still credit unions will treat their members in much the same manner as banks treat their customers. Customer service is paramount for both kinds of financial institutions. If you do not provide great service then people are just going to move on to other companies.
More Information About What is a Credit Union
In one area, banks and credit unions are much the same. When it comes to lending money to their customers or their members, they look for good to excellent credit ratings and consumers whose debt to income ratio is in the 30% to 35% ratio. The fact of life is that credit unions must earn a return for their members and they cannot afford to have many bad loans if they want to pay their members a dividend on their accounts.
Credit unions are also trying to keep up with the big banks in terms of automation and an online presence on the internet. Unfortunately they do not always have the kind of funding that is needed to finance online access with bill payment and other features that many consumers have come to appreciate with the larger banks. Credit card services, with gold cards that have services like health insurance, travel insurance and many other features are not always offered by all credit unions.
Consumers can compare features along with the cost of these services to determine what the best approach is for them. If you are considering whether to open an account at a bank or a credit union, list all of the services and features offered by the credit union and compare them to what your local bank will offer and at what price. Some features will be more important to each consumer and may dictate which direction you take.
If you feel that you may need a personal loan at some point or a mortgage and your credit union does not offer these kinds of services, consumers may want to consider a bank that does offer these services. Future loans and mortgages with your financial institution may be easier with them if you are also a customer.
However on this web site we also talk about mortgage brokers who offer to find loans and mortgages at the best possible rates and terms. They routinely consider products offered by credit unions, banks, lending institutions and even individuals who offer loans of all kinds. Their objective is to find the best possible rate for their customers and do not really care if they refer you to a credit union, a bank or a private lender as long as they get paid. Brokers are paid by the company providing the mortgage or loan when a customer is referred to them.
Credit unions are not usually in the habit of lending money to people with bad credit ratings or no credit rating. Opening an account with them is one way to begin establishing a relationship with them and to also put you in good position for borrowing money from them.