Everything You Need to Know About Credit Unions

Without a doubt when it comes to everyday financial decisions, banks are what come to mind for the majority of consumers. This is the case for deciding between checking and savings accounts, mortgage options, credit cards and a long list of other financial products. Banks have a dominant position in personal finance and they are default option for the majority of consumers in the United States and elsewhere. But credit unions are an option that should not be overlooked. While on the one hand, credit unions have membership requirements which in turn means that you can’t automatically join or get access to their financial products, there are now enough of them operating in the country that it is extremely likely that you are eligible to join several of them. And as we discussed in our in-depth article on Credit Unions vs. Banks, and discuss further below, there are a number of unique benefits to considering a Credit Union when deciding where to open financial accounts.

Table of Contents

The Difference Between a Credit Union and Bank

There are several differences between credit unions and banks, many of which we’ve discussed elsewhere at length. But three of the more significant differences are the not-for-profit status of credit unions, the tax status of credit unions, and the financing terms credit unions offer which is closely related to the fact that they are member-owned and not-for-profit. 

  • Credit Unions are Not-For-Profit: Banks are for-profit businesses. What this means is that typically exist to generate a profit for their shareholders and owners. Often this also means that these companies are publicly traded which adds further pressure to deliver profitability. Because of the for-profit structure, every cent a bank makes from its customers goes towards the owners and shareholders of the bank. On the contrary, credit unions are not-for-profit institutions. Credit unions are set up as cooperatives and are owned by their members, and exist to serve these members. Credit unions usually only offer membership to people who share a common characteristic. For example, a cooperative may create a credit union focused around a particular industry, only allowing those who work in the same industry to access their services.
  • Credit Unions Don’t Pay Federal Tax: Credit unions do not have to pay federal taxes due to their not-for-profit status. In fact, some credit unions receive subsidies from organizations that they work with. The not-for-profit status also means that credit unions aren’t beholden to the needs of shareholders but exist to serve interests of their members. By contrast, banks are fully taxed. What this means for customers is that banks tend to be more aggressive in their product offerings, and look for ways to charge customers for more services.
  • Credit Unions Offer More Attractive Loan Terms: generally, credit unions help members access lower rates on loans and higher rates on savings products. Again, this is reflective of the union’s core focus on its members. Credit Unions achieve this by using their profits to help make their services more cost effective for their customers. Credit Unions focus on using their profits to lower fees charged to their members. This is easily one of the most attractive aspects of credit unions. The below chart summarizes this point and is based on data from the National Credit Union Administration.

chart comparing rates between banks and credit unions

  • Credit Unions Offer More Attractive Loan Terms (Continued): Banks operate with a different philosophy and often will charge more fees on their products. This is in addition to charging higher rates for loans and offering lower rates for savings accounts. In fact, even the services a bank may offer without fees such as checking accounts, tend to come with additional stipulations. For example, those opening checking accounts with a bank may be required to maintain a minimum account balance. This is usually not an issue with credit unions. Banks also tend to charge higher fees for mistakes, such as overdrawing your account or bouncing a check.

What Our Survey Said About Credit Unions

Our first 2022 consumer survey had a several interesting points to consider for consumer habits, banks and credit unions. Some of the data points from the survey are a helpful starting point for those less familiar with credit unions:

  • 75% of the population views their bank as the primary provider of financial services vs. 25% that believe it is their credit union
  • For the younger generation (Gen Z and Millennials) approximately 80% view their bank as the primary provider
  • Credit Union customers tend to adopt more financial products than bank customers
  • Credit Union customers are significantly more satisfied than bank customers. Specifically 68% of credit union customers indicated that they were very satisfied with their credit union compared to 49% for bank customers

us-consumers-satisfaction-with-bank-credit-union

The Different Types of Membership

Credit unions are only open to those who are eligible for membership. Eligibility can be based on your employer, family, where you reside or due to your membership in a particular group. The group itself could be a labor union, place of worship or homeowner’s association. Credit unions have as of December 2021 130 million members across the United States according to the National Credit Union Administration (NCUA). The existence of membership requirements makes credit unions less accessible than banks almost by definition. Banks do not have such requirements and are more or less open to anyone, although there are implicit limitations based on geographies. However, many people may not even realize that they’re eligible for membership with a credit union. In some cases, people aren’t even aware that they have access to a credit union in their community. For Federal credit unions there are three types of charters:

  • Single Common Bond – people that share a common bond such as working at a factory
  • Multiple Common Bond – people that share multiple common bonds
  • Community – live or have ties to a particular community such as a county or a town

In addition over the years the NCUA has made amendments to its rules to make it easier for federal credit unions to expand their fields of membership. For example, in 2015, the NCUA amended its associational common-bond requirements which added 12 new types of groups that they would pre-approved for federal credit union membership:

  • Alumni associations
  • Religious organizations
  • Electric cooperatives
  • Homeowner associations
  • Labor unions
  • Scouting groups
  • Parent-teacher associations
  • Chamber of commerce groups
  • Athletic booster clubs
  • Fraternal organizations
  • Ethnic organizations
  • Professional trade organizations

The Role of the NCUA

The NCUA is the FDIC equivalent for credit unions. The NCUA is responsible for federally insuring credit unions in order to provide protection to members who are the owners of the entities and have deposits with the credit unions. In addition, the NCUA also charters and regulates all federal credit unions and works to identify, monitor and reduce risks to the National Credit Union Share Insurance Fund, which was created at the same time as the NCUA and is administrated by the agency. Just like the FDIC, the NCUA insures deposits at federal credit unions up to $250,000. Take a look at our overview of the NCUA page to learn more.

25 Largest Credit Unions in the United States

There are actually more credit unions actively operating in the United States than there are banks, so the fragmentation is actually more significant. That said, there are a handful of credit unions that have a disproportionate share of both members and assets, and this extends beyond what we refer to as the Big 6 Credit Unions. Collectively these credit unions have 33.5 million members and over $500 million of total assets.

  1. Navy Federal Credit Union
  2. State Employees’ Credit Union
  3. Pentagon Federal Credit Union
  4. Boeing Employees Credit Union
  5. America First Credit Union
  6. Schoolsfirst Credit Union
  7. The Golden 1
  8. Mountain America Credit Union
  9. Randolph-Brooks
  10. Suncoast Credit Union
  11. Digital Credit Union
  12. Security Service Credit Union
  13. Vystar Credit Union
  14. Alaska USA Credit Union
  15. Redstone Credit Union
  16. First Tech Federal Credit Union
  17. Alliant Credit Union
  18. Municipal Credit Union
  19. Space Coast Credit Union
  20. Pennsylvania State Employees Credit Union
  21. Members 1st Credit Union
  22. Idaho Central Credit Union
  23. Delta Community Credit Union
  24. Onpoint Community Credit Union
  25. Ent Credit Union

Minority Depository Institutions

Credit Unions also have Minority Depository Institutions (MDIs) which have somewhat different qualification characteristics than Banks but functionally serve the same purpose. There were 509 active credit unions that were designated as MDIs as of December 2021. Visit our page on Minority Depository Institutions to learn more about them.

Our Credit Union Directory

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