A not-for-profit financial institution owned by its members and represented by a volunteer board of directors who are elected by the membership. Credit Unions are formed by people who join together to form a common bond. To become a member, you must meet the credit union’s field of membership requirements and open a share account. Credit unions make money by loaning other members your savings. The members who borrow money from the credit union pay interest on their loan (like rent for using the money). The credit union then takes the interest from the loans and pays you a dividend on your share account.
Credit unions are financial cooperatives set up by employee and community associations, labor unions, church groups, and other organizations. They provide affordable financial services to members of the sponsoring organization.
In some cases, they're created in rural or economically disadvantaged areas, where commercial banks may be scarce or prohibitively expensive.
Because they are not-for-profit, credit unions tend to charge lower fees and interest rates on loans than commercial banks while paying higher interest rates on savings and investment accounts.
The services offered at large credit unions can be as comprehensive as those at large banks. At smaller credit unions, however, services and hours may be more limited, and a few deposits may not be insured.
Assets in most credit unions are insured by the National Credit Union Share Insurance Fund on the same terms that deposits in national and state banks are insured by the Federal Deposit Insurance Corporation (FDIC).
- Browse Related Terms: Account Agreement, Checking Account (Share Draft Account), Credit card issuer, Credit Union, Credit Union Statement, Dividends, Drawee, Drawee Institution, Financial Performance Report (FPR), Furnisher, Index-linked Share Certificate (SC), Peer Average Ratio, Percentile Rankings, Personal Savings Account, Share Account, Share Certificate, Share Draft Account, Wire transfer
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