Understanding Bank vs. Credit Credit Union

A bank is a commercial or state institution that provides financial services by accepting deposits from customers and in turn making loans to other customers. A credit union, on the other hand, is a cooperative financial institution that is owned and controlled by its members. So unlike banks, credit unions are actually owned by members that have accounts with them.

Credit unions offer very similar financial services as banks. This includes share accounts (savings accounts), share draft accounts (checking accounts), credit cards, and share term certificates (CD's), and online banking.

Credit union policies governing interest rates and other matters are set by a volunteer Board of Directors elected by and from the membership itself. Only members of the credit union can deposit money with and borrow money from it. In the United States, credit unions usually pay higher dividend(in form of interest) to its members and charge lower interest on loans than banks.

Unlike banks, credit unions are required by government regulations to restrict their membership to specific defined segments of the population. This is referred to as the "field of membership." It can include segments of people who live, work, worship, or attend school in a certain geographical region; employees of specific companies or trades; members of specific non-profit groups such as alumni associations, conservations, churches, or the like; or a particular occupational group such as teachers, doctors, truckers, etc.

Credit unions are a very good alternative option for people who fall within a certain "field of membership."

Just like banks that we want to be FDIC insured:

The credit unions should be insured by the National Credit Union Administration.

 

If you join a NCUA insured credit union, your share accounts are insured up to $100,000. To check if the credit union is NCUA affiliated, you can check it here.


Tip: A logical strategy is to spread your money across different credit union accounts at under $100,000 each.  This will result in all your money will being covered 100% by NCUA.

Some useful credit union resources available on the internet include:

  • CU Matchup - this site is essentially a search engine for credit unions to match your "field of membership."
  • Credit Unions Online - this site also lists credit unions and allows you to search for matches to your criteria.
  • State Credit Union League - information of credit unions by each state.