So What's a Credit Union Anyways?

Personal finance basics usually teach us to put our money away in a bank checking or savings account. The credit union is a less talked about alternative. Recently, though, there's been a lot of buzz surrounding it. So what exactly is a credit union?

Organization
Credit unions were originally created as a way to serve the financial needs of a specific community. These communities can be the residents of a city, the employees of a certain company, students and faculties of a school, etc. Besides being customers, the members of each credit union are also its owners. They elect a volunteer board of directors and have more say in the investment decision process because the organization's purpose is to directly benefit them.


Membership
Joining a credit union nowadays is not as difficult as it used to be. Most credit unions extend their membership beyond those whom they were originally intended to serve. For the most part, even if you don't belong to a certain community, you can still become a member. Some will ask you to make a donation to a certain charity they support. If you belong to an associated organization, are related by blood or marriage to a member, or even live near a branch, you may be eligible to join.

Not-For-Profit Model
Unlike banks, credit unions operate under a not-for-profit format. Because a credit union's main purpose is to serve its members, it uses its profits to just cover its costs and reinvest the rest to offer members better deposit account rates and lower borrowing costs. Banks, on the other hand, turn profits in order to answer to their investors. However, because of this, credit unions tend to provide more basic financial services instead of a larger variety by banks.

All in all, credit unions are very similar to banks in that they're great providers of basic financial services. Like banks, your deposits under $250,000 are insured by the United States government. Instead of being insured under the Federal Deposit Insurance Corporation (FDIC), though, it is under the National Credit Union Administration (NCUA). I hope this makes it clearer what credit unions are and why the exist. Hopefully, you'll take them into consideration the next time you are looking to open a deposit account.