Banking Credit Unions How Credit Unions Work By Justin Pritchard Updated on July 12, 2021 Reviewed by Charlene Rhinehart In This Article View All In This Article How Banks and Credit Unions Differ Benefits of Using Credit Unions Services Available at Credit Unions Gaining Member Eligibility Opening an Account Photo: SDI Productions / Getty Images Credit unions are nonprofit organizations that provide financial services to their members. If you need to save money, pay bills, or get a loan, a credit union is an all-in-one option for those services. How Banks and Credit Unions Differ Credit unions offer many of the same products and services as banks, and the experience of using those services is often roughly the same. However, there are a couple key differences. Investor Owned vs. Member Owned Ownership is the main difference between banks and credit unions. When you open an account at a credit union—no matter how small—you become a partial owner of the institution. All credit unions are owned by their customers, who are called members. Banks are owned by investors, who might not be account holders or community members. Note Credit union members vote for the board of directors. Each member gets one vote, so all members have equal power—thus, members with more money in the credit union don’t get more votes than members who have less. For Profit vs. Not for Profit Unlike banks, credit unions are not-for-profit institutions. Generally, they operate in the best interest of their members. They don’t need to worry about stock prices or corporate investors. However, credit unions are not charities. They must make sound financial decisions, collect revenue, pay salaries, and compete with other institutions. Benefits of Using Credit Unions Credit unions are often popular with their members, some of whom are fiercely loyal to their institutions. Preferable Rates and Fees Because they’re member-owned, not-for-profit institutions, credit unions often pass their success on to members in the form of lower fees, higher interest rates for savings, and lower interest rates for loans compared to those at banks. That said, not all credit unions are equal, so it’s always worth comparing rates and fees before choosing an institution. Community Involvement Credit unions often play an important part in local economies by offering financial education and outreach and supporting small businesses. They also often support charitable organizations in the community. Shared Branching This is a service that is unique to credit unions. Because credit unions are often local institutions, they don't usually have a widespread network of branches or ATMs. However, in many cases, it’s possible to use branches and ATMs of other credit unions—for free—through a shared branching network. You can make deposits and withdrawals, pay loans, and more. To use shared branching, both your home credit union and the branch you intend to use need to be part of the shared branching network. Better Customer Service Since credit unions are member-owned nonprofits, they often outperform banks when it comes to customer service. If you value building relationships with tellers and loan officers, a credit union or community bank is the best place to find that experience. Services Available at Credit Unions Credit unions provide financial services to consumers, businesses, and other organizations. The most common offerings are described here, but every credit union is different. Share Accounts (Savings) At a credit union, savings accounts are called share accounts, because you—like all other customers—are a partial owner of the credit union. These are a safe place to keep cash and earn interest on your savings. Certain transfers from a savings account may be limited each month. Note Federally insured credit unions are backed by the National Credit Union Share Insurance Fund (NCUSIF). This government-backed fund covers deposits up to $250,000 per account holder per institution. If your credit union is not federally insured, you still might be protected under a private insurance policy, and your money might be safe, but NCUSIF insurance is best because of the government guarantee. Share Draft Accounts (Checking) Checking accounts at banks are usually referred to as share draft accounts at credit unions. Just like with checking accounts, share draft accounts allow you to spend your money without monthly limits on payments. There are several ways to access your money, including paper and electronic checks, debit cards, online payments, and cash withdrawals. Certificates of Deposit (CDs) CDs are like superpowered savings accounts. They often pay more interest than regular savings, but there’s a catch: You need to commit to leaving your money in the CD for a specified amount of time, often one to three years. If you prefer flexibility, some institutions offer money market accounts, which pay similar interest rates and allow you to access your funds throughout the month. Loans Loans are available for a variety of uses. Credit unions use the money that other customers deposit to fund loans for borrowers. These include home loans (mortgages), auto loans, personal loans, and credit cards. Other Services At most credit unions, you can also get the following: Official checks like cashier’s checks or certified checks are usually offered for a small fee, but you should only need these items for the occasional down payment or other life events. Safe deposit boxes are a safe place to keep important documents and small valuables. Your items are stored behind several locks, but you’ll need to retrieve anything you need during banking hours. Notary services can be helpful when you need to prove that a signature is valid on official documents. A credit union employee—who must also be a notary public—can place an official stamp on your documents and record the time and date of your signature. The products and services available to you will vary from one credit union to another. Larger credit unions typically offer a broader variety, while small credit unions might keep offerings minimal. Gaining Member Eligibility To become a member of any credit union, you need to “qualify” or be eligible to join. Credit unions are designed to serve individuals and organizations that share a common bond, and people who meet the criteria are known as the field of membership. You can qualify in a number of ways. Your Job Your employer might sponsor a credit union or have relationships with credit unions in your area, so you’d have the ability to join those credit unions. Some careers also qualify you to be part of a credit union—your individual employer doesn’t matter, because your occupation gets you in. Your Location Some credit unions are open to anybody who lives or works in a geographic area. For example, you could qualify simply because you live in a particular city or county. Even going to school or worshiping in an area you don’t live in can result in eligibility. Note To see a listing of credit unions in your area, along with a description of the eligibility requirements, you can search with your ZIP code at CULookup.com. A Group Membership Being a member of certain groups can make you eligible for certain credit unions. Some groups are open to the public, and you can join those groups for the purpose of becoming a credit union member. Other groups, like a homeowner’s association, require that you meet other criteria. Your Family If a member of your family is a credit union member, you can most likely join that credit union based on your relative’s eligibility. Opening an Account Once you find an institution that you like, becoming a member is as easy as opening an account. The process is the same as opening an account at any bank or credit union. You’ll need to provide information about yourself, bring identification, and make an initial deposit (usually $25 to $100 minimum). All credit union customers need to open a basic share (or savings) account. Even if you’re only joining the credit union to get a loan, you’ll need to become a member—which requires that you have a “share” of the credit union. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. National Credit Union Administration. "What Is a Credit Union?" National Credit Union Administration. "Comparison of Average Savings, Deposits and Loan Rates at Credit Unions and Banks." CO-OP Financial Services. "CO-OP Shared Branch." National Credit Union Administration. "Glossary - S." National Credit Union Administration. "Share Insurance Fund Overview." Consumer Financial Protection Bureau. "What Is a Credit Union Share Draft Account? Is it a Checking Account?" Consumer Financial Protection Bureau. "What Is a Certificate of Deposit?" Consumer Financial Protection Bureau. "What Is a Money Market Account?" Consumer Financial Protection Bureau. "Checklist for Opening a Bank or Credit Union Account." National Credit Union Administration. "Find, Join or Start a Credit Union."