What is a Credit Union
What is a credit union? Also known as a Credit Union in English, it is a type of non-profit financial institution controlled by its members, who have a common bond and in turn are the ones who deposit money in it.
This link may be due to the area in which they live, the employer they work for, or the type of position they hold in their jobs.
Just like banks, credit unions allow these people to deposit money, apply for loans, and open a new credit card account.
How Does a Credit Union Work?
The cooperative is made up of members who, in turn, are usually the clients themselves. They save with their credit union and create a pool of money available to be used to lend money to other members.
Credit unions tend to be focused on communities and therefore tend to be smaller than banks. This is why while a bank usually has a wide range of branches in a country, you will only find credit unions in a specific community.
The interest charged on loans to members is what generates income for the credit union.
In addition, the credit union may choose to make interest repayments generated by the loans granted.
The money that has not been subject to loans to other members of the cooperative is usually used as a form of investment to generate extra income for this financial institution.
Those revenues generated are used to pay the operating expenses of the credit and savings cooperative.
Finally, the dividends generated by its shareholders are financed by the remaining money called ” Surplus “, whose purpose is to be used to improve the services provided to its members.
What Benefits Do Credit Unions Offer?
- Higher interest rates for savings and checking accounts.
- Lower interest for loans.
- Lower monthly rates or even free of fees.
What are the Disadvantages of Savings Cooperatives?
- Some are so small that the services they offer are very limited compared to banks.
- A low number of branches, since they are small and are only focused on the communities they serve.
Credit Union Examples
Some examples of credit unions in the United States are:
- Alliant Credit Union: The best credit union for checking and savings accounts.
- Consumers Credit Union: Best credit union for APY.
- Connexus Credit Union: The best credit union for checking.
- First Tech Federal Credit Union: The best credit union for the member experience.
- The Golden 1 Credit Union: The best credit union for teens and college students.
What Are The Requirements To Belong To a Cooperative?
- Be eligible: That is, you must be part of the membership field of said savings cooperative, either by living in the same community, working in the same company or occupations for which they provide their services.
- Make an initial deposit: It can be $25 or even $5 to open an account.
- Use your account to make your savings.
If the number of available locations is not an inconvenience for you and you are looking for higher interest on your savings accounts or low interest on loans, then resorting to a credit union may be your best option.
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Credit Union FAQs
What is the purpose of a credit union?
The main purpose is to encourage members to save money. Another purpose is to offer loans to its community members.