Credit union

Definition

A credit union is a financial cooperative owned and operated by its members, who are typically individuals with a common bond. 

What is a credit union?

Unlike traditional banks, which are owned by shareholders and operated for profit, credit unions are nonprofit organisations that exist to serve their members’ financial needs.

Credit unions are membership-based organisations, and individuals must meet eligibility requirements to join. Common membership criteria include residing in a specific geographic area, working for a certain employer, belonging to a particular industry or profession, or being a member of an affiliated organisation or association.

Members of a credit union are also its owners. Each member has equal voting rights regardless of the amount of money they have deposited or invested in the credit union. 

Credit unions operate on a not-for-profit basis, meaning that any profit generated is returned to members in the form of dividends, lower interest rates on loans, higher interest rates on savings accounts, and improved services. Unlike banks, credit unions do not have shareholders expecting dividends or capital gains.

Credit unions offer a range of financial products and services similar to those provided by banks, including savings accounts, checking accounts, certificates of deposit (CDs), loans , credit cards, and online banking services. Some credit unions may also offer additional services such as insurance, investment products, and financial counselling.

Example of a credit union

Sarah is looking for a place to deposit her savings and obtain a loan for a car. She decides to join a local credit union in her community. 

After becoming a member by opening a savings account and depositing some money, Sarah applies for an auto loan at the credit union. The credit union offers her a competitive interest rate and flexible repayment terms. 

Sarah is pleased with the personalised service and affordable financing options available at her credit union. In addition to banking services, the credit union also provides financial education workshops and community events, strengthening its ties with its members and the local community.