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What is a Credit Union?

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Finding the right financial partner can be a long and difficult search. The hundreds of options available locally or online only complicate the decision. That’s where credit unions come in, offering a refreshing alternative to traditional banks. Let’s explore credit unions, how they work, their benefits and how they differ from banks.

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Yellow notepad with pen svg icon Lesson Notes:
  • Credit unions are member-owned financial cooperatives
  • Profits reinvested or returned to members
  • Lower fees and better rates than banks
  • Emphasize community involvement and financial education

Introduction to credit unions

A credit union is a member-owned financial cooperative that offers banking products and services. It is owned and controlled by its participants, known as members. A credit union's primary purpose is to serve its members rather than to maximize profits. This member-centric approach results in better interest rates, lower fees, and a focus on customer service.

Credit unions operate under a not-for-profit model, meaning any generated earnings are reinvested into the organization or returned to union members via higher savings rates, lower loan rates, and enhanced services. This structure fosters a community-oriented atmosphere where members' financial well-being is the top priority.

Credit union vs bank: Key differences

After understanding what a credit union is, the next step is to compare options for compatibility. When considering your financial options, it's important to distinguish between credit unions and banks. Several key differences stand out in the credit union vs. bank comparison.

Ownership and structure

  • Credit unions: Owned and run by their members. Each member has the right to an equal vote in electing the board of directors, regardless of the size of their deposits. This democratic structure guarantees that it operates in the best interest of its members.
  • Banks: For-profit corporations owned by shareholders. The primary objective is to generate profit for shareholders. As a result, this shareholder orientation leads to higher fees and interest rates for customers.

Profit distribution

  • Credit unions: Profits are returned to members through reduced loan rates, higher savings rates, and lower fees. This focus on member benefits can result in more favorable financial products and services.
  • Banks: Profits are distributed to shareholders. To maximize profits and increase shareholder distributions, banks might charge higher fees and interest rates on their products.

Fees and rates

  • Credit unions: Typically offer lower fees and better rates on loans (mortgages, auto, and personal) and savings accounts due to their not-for-profit status. This makes them a more affordable option for many consumers.
  • Banks: Due to their profit-driven model, banks may charge higher fees and offer less favorable interest rates.

Services and accessibility

  • Credit unions: Often provide personalized service and a community-focused approach. While they have fewer branches and ATMs than large banks, many participate in shared branching networks, enabling their members to access bank services at other credit unions.
  • Banks: Generally, banks have more branches and ATMs, offering greater accessibility. In addition, they provide a broader range of products and services, including international banking, investment banking and wealth management.

Community focus

  • Credit unions: Emphasize community involvement and financial education. Many credit unions support local initiatives, provide financial literacy programs and offer scholarships and grants to members.
  • Banks: While many banks engage in community activities and corporate social responsibility, their primary focus remains profitability and shareholder returns.

Benefits of joining a credit union in colorado

In 2023, credit unions provided $22,925,267,798 in direct benefits to their members (America’s Credit Unions, 2024, p. 2). That equates to a $348 benefit per member household. With such advantages, joining a Colorado credit union is a winning decision that offers several advantages:

Member-centric services

As a member-owned institution, a credit union prioritizes its members' needs. As a result, you receive more personalized service, better customer support, credit union member benefits and products tailored to the community's specific needs.

Member rights and participation

As a credit union member, you have unique rights that empower you to participate in governance. You have voting rights to elect the board of directors and can participate in annual general meetings.

Community focus

Credit unions have a strong community presence and are involved in local initiatives. By joining a credit union in Colorado, you are supporting an organization that invests in your local community.

Financial education

Many credit unions provide financial education resources to help members manage their finances effectively. You will benefit from one-on-one financial coaching, workshops and online resources.

Access to shared branching and surcharge-free ATMs

Most credit unions participate in shared branching and ATM networks, providing members access to thousands of branches and ATMs nationwide. Today, you can access over 5,600 shared branches and 30,000 CO-OP ATMs. At any time, you have convenient access to your money wherever you are.

Support for small businesses

If you are an entrepreneur, credit unions provide favorable terms and support for small business owners. A credit union can be a valuable partner if you need a business loan, asset financing or other business banking services.

Choosing the right credit union for you

Selecting the best credit union is crucial for meeting your financial needs. Here are some factors to consider:

  • Eligibility: Ensure you meet the membership requirements. Some credit unions are only open to specific groups, such as employees of certain companies, members of organizations or residents who live, work or worship in a certain geographic area.
  • Services offered: Evaluate the range of credit union services offered to determine whether they meet your needs. While most credit unions provide essential banking services, some offer additional products like investment services, insurance or business accounts.
  • Rates and fees: Compare the interest rates on savings accounts, loans and other products. Also, review the fee structure to ensure it aligns with your financial habits.
  • Deposit insurance: Confirm that the credit union offers the standard NCUA insurance limit of $250,000 per individual depositor.
  • Convenience: Consider the location of ATMs and physical branches, as well as the availability of online and mobile banking services.
  • Reputation and reviews: Research the credit union’s reputation and read reviews from current members. A credit union with a strong track record of member satisfaction and good customer service is a solid choice.

FAQs

What exactly is a credit union, and how does it work?

A credit union is a member-owned financial cooperative that offers banking services. It operates on a not-for-profit basis, meaning any profits are returned to members through better rates and lower fees. Members have a say in how the credit union is run. Therefore, the institution prioritizes their needs.

What are the main differences between credit unions and banks?

The main differences between credit unions and banks include ownership and profit orientation. Credit unions are owned by their members and operate on a not-for-profit basis, returning profits to members through lower fees and better rates. Banks are shareholder-owned for-profit institutions, with profits distributed to them. Credit unions offer more personalized service and have a strong community focus, while banks provide a wider range of services.

What are the benefits of joining a credit union in Colorado?

Joining a credit union in Colorado offers benefits like better interest rates on savings and loans, lower fees, personalized service, community involvement, financial coaching, exercising voting rights and access to a large network of ATMs and shared branches.

How do I choose the right credit union for my financial needs?

To choose the right credit union, first consider eligibility requirements. Then, assess the range of services offered, interest rates and fees, convenience of branch and ATM locations, online and mobile banking availability and the credit union’s reputation and reviews from current members.

Citations

*PLEASE NOTE: This article is intended to be used for informational purposes and should not be considered financial advice. Consult a financial advisor, accountant or other financial professional to learn more about what strategies are appropriate for your situation.

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