Credit Union Guide

Credit unions are cooperatives financial institutions that are controlled and owned by its members and operated for the purpose of promoting thrift, providing loans at more advantageous competitive interest rates, and promoting other financial services to all involved members.Many credit unions exist to further assist community development or sustainable international development on a local level.

What is a credit union?

Worldwide, credit union systems vary significantly in terms of total system assets and average institution asset size,[6] ranging from volunteer operations with a handful of members to institutions with several billion dollars in assets and hundreds of thousands of members. Credit unions are typically smaller than banks; for example, the average U.S. credit union has $93 million in assets, while the average U.S. bank has $1.53 billion, as of this mid 2000′s.

Credit unions generally offer higher interest rates on savings accounts and other types of investments than other financial institutions do, those higher interest rates don’t translate into higher risk. That’s because each account is insured for up to $250,000 by the National Credit Union Share Insurance Fund, the government’s equivalent for credit unions of the FDIC. Some credit unions are insured by ASI. Check with your credit union to learn about your level of insurance protection.

The World Council of Credit Unions defines credit unions as “not-for-profit cooperative institutions”. In practice however, legal arrangements vary by jurisdiction. For example in Canada credit unions are regulated as for-profit institutions, and view their mandate as earning a reasonable profit to enhance services to members and ensure stable growth.

Credit unions often offer competitive interest rates on everything from savings accounts, auto and home loans, and credit cards in part because they are non-profit agencies and have no taxes to pay and not publicly traded corporations. This way credit unions can pay their members above-average interest rates on deposits and charge below-average interest rates on loans and credit cards. On average consumers find the best interest rates at credit unions compared to banks.

This difference in viewpoints reflects credit unions’ unusual organizational structure, which attempts to solve the principal-agent problem by ensuring that the owners and the users of the institution are the same people. In any case, credit unions generally cannot accept donations and must be able to prosper in a competitive market economy.