Let’s start with the basics. A credit union essentially refers to a form of a non-profit financial institution that is run by its own members. They are the individuals who deposit money into the credit union. Credit unions return all profits to their members in the form of lower interest rates. This is in stark contrast to how traditional banks operate. The conventional form of banking is run by the shareholders who want to maximize profits. As a result, credit unions have a far smaller operation and are able to address fewer needs than regular banks.
Functions of the Credit Union
Credit Unions perform similar functions to a bank. They collect deposits, offer money for borrowings, and allow the opening of a new credit account. While traditional banks consider the shareowners to be the owners, in a credit union, the shareholders are the members of the credit union, and the profit earned in the credit union is ultimately distributed back to the members.
The certificate of deposit, or COD, an investment instrument has a high-interest rate in this scenario. It offers a low-interest rate on mortgages and credit union business loans. Credit unions also have few penalties and banking fees. Every member, regardless of their share, earns the privilege to vote. They decide on the panel of the board of directors and can directly influence the policy of the credit union.
The deposits and borrowing of money are strictly limited to the members of the credit union. This type of banking demands that members pool the money together and the benefit is accrued by all related members.
Despite this, credit unions’ not-for-profit status means organizations have fewer assets and may not provide as many financial products as regular banks. Credit unions, despite their growing popularity, may have fewer ATMs and physical locations than banks.
Credit unions, on the other hand, are better equipped to meet the demands of their members. Members are more than simply numbers on a spreadsheet; they are active participants in the credit union’s operations. Credit unions are often made up of peers from a smaller grouping, including university students and graduates, members of an actor’s guild, or municipal employees.
The maximum deposits insured in a credit union are similar to a traditional bank, with deposits up to $250,000 being insured with the Federal Deposit Insurance Corporation (FDIC). This is a highly popular method of borrowing that is used amongst communities.