What Is a Credit Union?

How Do Credit Unions Work?

Credit unions are member-owned and -operated. Members elect a board of directors, which volunteers to manage the credit union. Credit unions are mission-driven organizations that prioritize their members through community engagement, member education and generous terms on banking products.

To bank at a credit union, you must become a member, which often means sharing an association with other members. You may all work for the same employer, for example, live in the same area or attend a certain school. But there are also credit unions you can join just by making a donation to an affiliated foundation or not-for-profit organization.

Deposits to most credit unions are insured up to $250,000 per institution, per member and per account category by the National Credit Union Administration (NCUA). This agency serves largely the same function as the Federal Deposit Insurance Corp. (FDIC) does for banks.

Learn more: What Is the Difference Between the FDIC and the NCUA?

What Services Do Credit Unions Offer?

The number of services provided depends on the size of the credit union. Smaller credit unions may not offer more specialized products, like individual retirement accounts (IRAs), while larger ones do. Here are the financial services you may be able to access at a credit union:

• Checking accounts
• Savings accounts
• Certificates of deposit (CDs), known at credit unions as share certificates
• Credit cards
• Mortgages, home equity loans and home equity lines of credit
• Car loans
• Wire transfers
• Personal loans
• Emergency small-dollar loans such as payday alternative loans

Learn more: Current Average Savings Interest Rates

Credit Union vs. Bank

Credit unions differ from banks in the following ways:

• Credit unions require membership to join. You may qualify through your employer, religious institution, labor union, school or where you live. You may also join if you have a family member who meets one of the credit union's requirements. Some credit unions don't restrict their membership at all: In these cases, anyone can join by donating to a partner charity or by opening a savings account with a small minimum deposit.
• Credit unions return profits to members. Banks are for-profit institutions, which means shareholders get a cut of the banks' earnings. Since credit unions are owned by their members, the members themselves benefit from these profits through lower-rate loans and higher-yield savings accounts. Some credit unions give members a share in their profits each year based on how much they have in their accounts. Members also elect representatives to each credit union's board of directors, so you'll have a say in how the credit union is governed.
• Credit unions' branches may be concentrated in a single area. A credit union's mission is often to serve the community where it's located, which means it may not have accessible physical locations elsewhere if you travel or move. But many credit unions have joined networks that offer fee-free ATMs and shared branches, and they may also offer online and mobile banking with features like mobile check deposit.
• Credit unions use different vocabulary. At credit unions, deposits—the money you put in a savings account, for example—are called "shares," and interest earned is called "dividends."

Do Credit Unions Report to the Credit Bureaus?

Neither banks nor credit unions report your bank account history or balances to the credit bureaus. Banking history is maintained in a separate report known as a ChexSystems report, which includes records of account activity such as bounced checks and unpaid negative balances.

Credit unions do typically report debt-related activities to the credit bureaus. This includes applications for new lines of credit as well as all loan or credit card payments. To maintain a good credit score, pay all your bills on time, including on any credit lines you've taken out from a credit union, and keep your balances as low as possible.

Pros and Cons of Credit Unions

Here are the benefits and drawbacks of banking with a credit union:

Learn more: Pros and Cons of Banking With a Credit Union

Should I Join a Credit Union?

A credit union is a strong option if you're looking for lower rates on loans and higher rates on savings accounts and you like the idea of belonging to a member-owned, not-for-profit cooperative. Particularly if you want a more personalized banking experience, joining a credit union could be worth it.

When deciding which credit union to join, you may want to prioritize one with an extensive branch and ATM network, a well-reviewed app and mobile banking offerings. Check to make sure, too, that the credit union offers the financial services you want now and may want access to in the future.

How to Join a Credit Union

You can search for credit unions using the NCUA's locator tool. You'll find credit unions local to your area and those that don't restrict their membership, and may require a donation to join. It's also an option to ask your employer, school or any community groups you belong to if they have an affiliated credit union.

Once you've chosen a credit union, you'll confirm your eligibility and open an account with a small deposit. You may also pay a one-time membership fee. You can typically open an account either online or in person.

Frequently Asked Questions

The Bottom Line

A credit union is a consumer-friendly banking option with a mission to serve its members. Credit unions generally provide a more personalized alternative to banks, if you're willing to trade some of the convenience traditional banks offer.

Credit unions may also save you money on interest and fees if you choose one as a lender, and pay you higher rates on savings deposits compared to a traditional bank. They're an especially worthwhile option if banks won't work with you due to your credit score, or if you're looking for a deeper connection to your community.