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What is a Credit Union?

An Overview

Credit union roots go back to 1849 when the first credit union was established in Western Europe. A credit union is usually formed around a common bond. Its main purpose is to give member-owners a place to save and borrow. Members put their money into a variety of savings and investment accounts. This money is then lent to members who pay interest. After operating expenses and reserve requirements are met, the remaining loan income is returned to the members as dividends and other financial services.

Member-owned credit unions are not for profit; they exist only to serve their membership. As a result, credit unions are able to pay high dividends on savings and charge low interest rates on loans.

What are the advantages of credit unions?

Credit unions exist only to serve their member-owners. Surveys repeatedly show members are more satisfied with the service they receive from their credit union than bank or savings and loan customers are with their institutions. Because credit unions are democratic, member-owned cooperatives, members have the power to direct credit union policy. If the majority of members are dissatisfied with the directors who set the policies of their credit union, they have the power to replace them.

Credit union elections are based on a one-member, one-vote structure. This structure is in contrast to for-profit, public companies where stockholders vote according to the number of shares of stock they own. Their nonprofit status enables credit unions to operate at a lower cost than many for-profit institutions and helps them to offer competitive loan and savings rates. For instance, credit unions usually charge lower interest on credit cards than most other providers, and many credit unions charge no annual card fee.