Jump to main content

What is a Credit Union?

The inspiration for credit unions originally came from cooperatives, which were started as a way to combat poverty and high interest rates, with members of the cooperative pooling their money to operate a cooperative store. Credit Unions became popular in the United States after Congress passed the Federal Credit Union Act of 1934.

The fundamental principles of a credit union still exist today: people pooling their savings to create a valuable credit resource not otherwise available; promoting financial literacy and helping members achieve financial health. This uniqueness separates a credit union from a bank. The credit union difference is in the structure.

Credit Union:

  • Member-owned, non-profit financial cooperative offering a variety of services to its members
  • Each member is an equal owner, with one vote
  • Volunteer Board of Directors, elected by the membership
  • Earnings, less operating expenses and reserves, are returned to members-owners in the form of higher dividend rates, lower loan rates, no or lower fees and improved services
  • Credit unions may only offer membership and financial services to individuals or corporations who are within its defined field of membership
  • Credit Unions can build capital only through retained earnings


  • For profit financial corporation offering a variety of services to its customers
  • Stockholders hold influence based upon the number of shares they own; customers do not have a financial interest in the bank
  • Compensated Board of Directors, chosen by stockholders
  • Bank profits, less operating expenses and reserves, are divided among the stockholders of the bank
  • Banks have no restrictions on who they serve
  • Banks obtain capital through investments by shareholders

Credit union members have ownership in the Credit Union and share in its success. The better a credit union performs the more money it can return to its members in the form of higher savings rates, lower loan rates and free/low cost services.