Credit Unions Explained: What They Are & How They Benefit You

A credit union is a type of financial organization that is owned and governed by its members. Credit unions provide members with a variety of financial services, including checking and savings accounts and loans. They are non-profit organizationsTypes of OrganizationsThis article on the different types of organizations explores the various categories that organizational structures can fall into. Organizational structures that are intended to provide high-quality services to its members, not to maximize profits. In addition, they are actively involved with the community.

Credit unions are financial organizations that are structured in a cooperative model. Members purchase shares in the organization. The money from the members is pooled together and used to provide financial services to the members.

Credit Unions vs. Banks

Although credit unions provide many services similar to the services provided by banks, the two financial organizations are significantly different from each other:

1. Ownership and Governance

Credit unions are owned and governed by its members. Any person who becomes a member can actively participate in the affairs of the organization by direct voting. For example, all members participate in the election of the board of directorsBoard of DirectorsA board of directors is a panel of people elected to represent shareholders. Every public company is required to install a board of directors..

On the other hand, banks are usually owned by a small group of shareholdersShareholderA shareholder can be a person, company, or organization that holds stock(s) in a given company. A shareholder must own a minimum of one share in a company’s stock or mutual fund to make them a partial owner.. Shareholders participate in the bank’s governance by electing a board of directors, while regular customers cannot participate in the exercise.

2. Goals

The main goal of credit unions is to provide financial services to its members, while banks focus on maximizing their profits.

3. Services

Due to their non-profit nature, credit unions can usually provide their members with services at lower costs. They typically charge lower fees for the maintenance of accounts and provide a broader variety of loans at lower rates relative to those offered by banks.

However, the credit unions’ narrow profit marginProfit MarginIn accounting and finance, profit margin is a measure of a company's earnings relative to its revenue. The three main profit margin metrics does not allow them to keep the same operations exposure as the banks. They tend to operate fewer branches and ATMs than banks, and lack more advanced technologies for their online banking services.

Additional Resources

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