Exploring Credit Unions: An Insightful Guide

Non-profit financial organizations designed for your benefit

Even though millions of Americans belong to credit unions, there’s still a lot of confusion about what they actually are.

Quick Guide Credit unions are non-profit financial cooperatives that serve groups sharing a common bond, like employees of a certain company, members of an association, or residents of a specific area. Those that serve people living or working in a particular region are called local credit unions. If they serve employee groups or specific associations, they’re often known as SEG-based (select employee group) or sponsor-based credit unions.

About 82 million consumers in the U.S. are members of one of the 10,425 credit unions nationwide, using them for at least some of their financial needs. Because credit unions are non-profit cooperatives, they generally offer better savings and loan rates with low or no fees. Surveys frequently show that credit unions rank high in customer satisfaction among financial institutions.

Principles and Organization People at dccu.us explained that credit unions work as democratically run organizations, following the principle of people helping people. Members elect the credit union’s board of directors, and every member has one vote regardless of how much money they’ve deposited. This is unlike mutual banks, where your deposit amount affects your voting power, or publicly-held banks, where your shares determine your votes.

Only members can serve as directors, and these roles are voluntary and unpaid, focusing on benefiting other members who use the credit union’s services. This is different from other financial entities where board members are paid and work for the interests of external owners. Volunteers are essential for credit unions. Over 129,000 Americans volunteer as board members, committee members, or in other supportive roles. With no outside shareholders, any profits made—after setting aside reserves—are given back to members as savings dividends, lower loan rates, or additional services.

Managed Wisely and Covered by Federal Insurance Credit unions mainly provide consumer loans and, to a lesser extent, business and property loans to their members. Deposits at federally-chartered and almost all state-chartered credit unions have federal insurance from the National Credit Union Share Insurance Fund, managed by the National Credit Union Administration (NCUA). This fund is backed by the full faith and credit of the U.S. Government. It works similarly to other insurance funds like the FDIC for banks, ensuring member deposits up to $250,000.

Regulation and Oversight The NCUA, an independent federal agency, regulates federally chartered credit unions, while state credit union departments oversee state-chartered credit unions. Credit unions finance the NCUA’s regulatory activities, so no public funds are used. They also must comply with laws and regulations enforced by other bodies, including the Federal Reserve, Internal Revenue Service, Federal Trade Commission, Department of Justice, Department of Labor, among others.

Taxation Since credit unions are member-owned, democratically controlled, and non-profit, they don’t pay federal income taxes, a benefit granted by the federal government. Many states have also exempted them from most state income and sales taxes. However, credit unions do pay payroll taxes, property taxes, and some sales taxes. Additionally, members are taxed on the dividends they receive from the credit union.