Credit union

A not-for-profit financial cooperative owned by its members that offers banking services, often with lower fees and better rates than banks.

What it means

A credit union works much like a bank but is owned by the people who keep money there. Members elect a volunteer board, and instead of paying shareholders, the credit union returns surplus earnings through lower loan rates, higher savings rates and fewer fees. Your deposit account is technically a share in the cooperative.

To join, you must fit the credit union’s field of membership, such as living in an area, working for an employer or belonging to a group; some open membership to almost anyone who joins an affiliated association. Nearly all credit unions are federally insured by the NCUA up to $250,000 per member, per insured credit union, per ownership category, which matches FDIC coverage at banks.

Example

For example, if a credit union offers an auto loan at 1 percentage point below a bank’s rate on a $20,000 loan, the borrower pays less interest over the life of the loan, though the exact savings depend on the term and rate.

How it’s used

Looking for lower-cost auto or personal loans
Avoiding high account fees
Banking with a local institution that has a community focus

Strengths and weaknesses

Strengths

Often lower loan rates and higher deposit rates than large banks
Fewer and smaller fees on average
Member ownership and a service-focused culture
NCUA-insured deposits

Weaknesses

Membership eligibility rules apply
Smaller branch networks and sometimes less advanced technology
Product range can be narrower than at big banks

Good to know

Many credit unions share ATM and branch networks, which can offset a small footprint.

Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.