What is a credit union?
A credit union is a cooperative, not-for-profit financial institution organized to promote thrift and provide credit at reasonable rates to its members. Credit unions often cater to specific groups of people—professionals working in a certain career, residents of a geographic region, members of the armed services, alumni of a particular college, or attendees of a specific church are some examples. Credit unions are member-owned and controlled through a board of directors elected by the membership. The board serves on a volunteer basis and may hire a management team to run the credit union. The board also establishes and revises policies that sets dividend and loan rates, and directs certain operations. The result: members enjoy a safe, convenient place to save and borrow at reasonable rates, at an institution that exists to benefit them; not to make a profit.
Who owns a credit union?
Unlike joining other financial institutions, credit union members each own one "share" of the organization. Users of credit union services are also owners entitled to vote on important issues like electing member representatives to serve on the board of directors. Most financial institutions are owned by stockholders who own a part of the institution and intend on making money from their investment. Credit unions don't operate that way. Rather, because members each own a stake in their credit union, earnings and revenue get cycled back to them in the form of high dividends on savings, low interest rates on loans, and better, personalized service.
How did credit unions originate?
The first credit union cooperatives began in Germany in the 17th Century in response to poor seasonal farming conditions and widespread poverty. Neighbors pulled together to co-operate a mill and a bakery, out of which they produced and sold bread to other villagers at reasonable prices so that everyone could thrive. That spirit of community, economic ingenuity, and reliability spread around the world, reaching American shores in 1909. The St. Mary's Cooperative Credit Association, a church-affiliated credit union in Manchester, New Hampshire, was the first credit union in the United States to open its doors. It launched to help mill workers save money and continues to operate today. Now, these community-driven, service-oriented financial institutions are found everywhere in the world. Today, one in every three Americans is a credit union member.
What is the purpose of a credit union?
The primary purpose of a credit union is to encourage members to save money. Another is to offer loans at reasonable rates. In fact, credit unions have traditionally made loans to people of ordinary means. Credit unions can charge lower rates for loans (as well as pay higher dividends on shares) because they exist as nonprofit cooperatives. Rather than paying profits to stockholders, credit unions return earnings to members in the form of dividends and improved services.
What makes a credit union different from a bank?
Credit unions are unique in that, like banks, they accept deposits and make loans. But, unlike banks, they do not operate to make a profit. Banks aim to make money for their stockholders, while credit unions help to make money for their depositors. Credit unions put people first, and they exist solely to serve their member-owners. They offer benefits such as lower loan rates and higher deposit rates than what banks are typically able to offer. Credit unions are the only democratically controlled financial institutions in the U.S. Members hold the power to elect a volunteer board that will oversee the credit union, and the president of the credit union reports to that board. Bank directors, however, are legally obligated to make decisions that benefit stockholders.
Are share deposits insured?
Yes. All share accounts are insured to at least $250,000 by the NCUA, the National Credit Union Administration, and backed by the faith and credit of the United States Government. The NCUA is an equivalent government agency of the FDIC, which governs and regulates the activities of banks.
Who can join a credit union?
A credit union typically exists to serve a specific group of people, such as a group of employees or the members of a professional or religious group. This is called a "field of membership." While Horizon began as a credit union exclusively serving health care professionals, we now welcome anyone who lives, works, attends school, or worships in our region. Learn more about becoming a member on Horizon’s How to Join page.