What Is a Credit Union?

How Do Credit Unions Work?

Credit unions require membership, often based on a common association among their members—that they all work for the same employer, for example, live in the same area or attend a certain school. Credit unions are member-owned and -operated: Members elect a board of directors, which volunteers to manage the credit union.

Credit unions prioritize serving their members through community engagement, member education and generous terms on banking products, including checking and savings accounts, credit cards, mortgages, wire transfers, personal loans and more.

What Is the Difference Between a Credit Union and a Bank?

The member-owned and -oriented nature of credit unions affects both the style and substance of the experience you'll get. 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. 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 may have fewer convenient branches. 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."

How to Join a Credit Union

Search for a credit union in your area using the National Credit Union Administration's locator tool. You can also ask your employer, school or any groups you belong to if there is 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 of $5 to $25. You can typically open an account either online or in person.

Advantages of a Credit Union

The biggest advantage is the one that most affects your personal bottom line: A credit union may offer higher savings rates and lower borrowing rates than a traditional bank. Here are the benefits you can expect from credit union membership.

• Higher savings rates: The national average savings rate at credit unions for a five-year certificate of deposit (CD) was 2.89% in Q3 2023, according to an analysis by the National Credit Union Administration (NCUA). The average rate for the same account at banks was 1.99%.
• Lower credit card and loan interest rates: Credit unions may also offer lower rates on credit cards, personal loans, car loans and home equity loans. According to the NCUA, an unsecured, 36-month fixed-rate loan carried a 10.58% interest rate at credit unions on average in Q3 2023, compared to 11.23% on average at banks.
• Borrowing flexibility: Borrowers without good credit may be more likely to get a loan from a credit union than from a traditional bank. Credit unions sometimes offer special programs for members with poor credit, which they're able to provide due to their not-for-profit status and their mission to invest in the local community.

Disadvantages of a Credit Union

Since credit unions are more likely to be locally focused, that may limit their convenience. Here are the typical drawbacks of credit unions.

• Potentially fewer product options: Some credit unions may not offer financial products and services big banks do, such as a wide variety of credit card options or retirement planning.
• May lack robust technology features: A credit union's app or website may not be as feature-rich and easy to use as what's offered by a major bank.
• Limited physical branches: If you prefer to visit physical bank branches, you'll likely have fewer options as a credit union member. But look into whether your credit union is a member of a shared-branch network, which will let you bank in person at other credit unions when you're traveling.

Do Credit Unions Report to the Credit Bureaus?

Neither banks nor credit unions report your bank account history or balances to 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 made (and whether they were made on time). 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 low.

FAQs

The Bottom Line

While a credit union is a financial institution, it is also a member-owned cooperative, which means its mission and products are focused on serving its members. Credit unions generally provide a more cost-effective and personalized alternative to banks, if you're willing to trade some of the convenience traditional banks offer. 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.