Credit Unions 101: What is a Credit Union?

While there are still a few individuals out there who keep everything in cash, most Americans rely on a financial institution to safeguard their funds. Many people also use these same institutions to manage payments, receive deposits and even take out money loans. But what many people may not know is that there are more than one kind of financial institution-- credit unions included. But let's be honest-- there are likely plenty of people who may be members of a credit union that don't understand how a credit union differs from a bank. And in today's uncertain times in the world of finance-- it's more important than ever to have a good grasp on the differences. By the end of today's bite-sized issue of "Credit Unions 101," you should be able to tell the difference between a bank and a credit union with confidence.

Let's Start with the Similar

Have you ever heard of a credit union before? (Spoiler alert, you're on one's website right now) If not, you are probably familiar with a regular bank. You've seen them a million times in old action cartoons. Bad guy goes to rob the bank by cracking open the safe and stealing thousands of someone's hard-earned money bags, before the superhero steps in and saves the day! Except there's one problem with that. That's not really how it works anymore-- for the most part. The primary role of banks, credit unions, and other financial institutions is to provide people with means to store and manage everything that has to do with their money. While financial institutions do still have some cash, most money is held in digital safes in this day and age. (Sorry super villains!) In some ways, banks and credit unions are virtually identical since they perform similar functions such as managing payments, money transfers, and loans. But the largest difference is HOW credit unions acquire money 

 

Where the Money Goes Counts

Probably the most striking difference between banks and credit unions is the fact that credit unions are naturally "not-for-profit." Banks are mostly reliant on Wall Street; meaning that they are largely funded by external investors. This means that any fees added to credit cards, loans, or other forms of "interest" may not necessarily be for funding bank functions-- it may be going into some person's wallet not affiliated with the bank at all! This is how a lot of "profit" works at banks, since you don't typically see banks selling retail goods. 

In a credit union, this works a little differently. Credit unions lack external investors-- all of the investors are on the inside. In fact, there is a secret to credit unions-- every person who uses a credit union is technically an owner! This is why most credit unions refer to their users as "members" rather than "customers" or "clients," because every person has a say in how the credit union should operate! When you join a credit union, you won't have to worry about the craziness that's happening on Wall Street to keep rates low or your money safe because the money rarely leaves the credit union. Instead, all money becomes "recirculated" either back into the credit union for upkeep or into the local community in forms of financial related programs. 

 

If you'd like to learn more about credit unions, make sure to check out these government resources for more info:

• https://ncua.gov/
• https://mycreditunion.gov

 

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