What Is a Credit Union?
Learn about how credit unions work and the "credit union difference" with this introductory guide.
Takeaways: How Credit Unions Work and What They Offer
- Banks and credit unions offer many of the same products and services.
- Credit unions are not-for-profit, cooperative financial institutions that are member-owned.
- Credit unions have a unique focus on financial education, community involvement and values-driven investments.
- Credit unions offer competitive savings rates, low fees, few fees and low balance requirements on average for deposit accounts (savings, checking, CDs, and MMAs) compared with many banks. Competitive rates could help your savings account grow faster, depending on the type of account.
- Credit unions also charge low fees and few fees and offer competitive rates on loans and credit cards compared with many traditional banks. This could help your loan cost less over time.
An Introduction to Credit Unions
A credit union is a member-owned, not-for-profit, cooperative financial institution offering services and products such as:
- Savings accounts
- Checking accounts
- Money market accounts
- Credit cards
- Car loans
- Home loans
- Small business services
Credit unions serve their own qualified members, allowing them to deposit, withdraw and borrow money. Credit union membership is typically tied to a business, type of work or region. This is different from a traditional bank where anyone can join as long as they meet the bank's financial requirements.
Bank profits are typically distributed to shareholders, with a focus on maximizing profit. In contrast, credit unions are member-owned and operated, with a focus on serving members' best interests. Credit unions operate on a not-for-profit status, prioritizing financial returns to members, financial education, community involvement and supporting members' financial well-being.
Members elect a volunteer board of directors to manage the credit union and make decisions in the best interests of the members.
The National Credit Union Administration regulates and insures all credit unions, providing a safe and secure environment for members' money.
Member-Owned Financial Institutions
Credit unions serve a wide range of communities, including employee groups, places of worship and nonprofit organizations. After joining a credit union, you can access a range of financial services and benefits, including competitive interest rates and few fees.
Members must meet certain eligibility criteria that the credit union establishes, called the "field of membership.," according to federal law. This is typically a common bond that unites members.
Examples of membership requirements can include:
- Working for a specific employer.
- Being employed within a specific industry, profession or trade (such as teaching).
- Living, working, attending school or otherwise active in a specific geographic area.
- Joining a specific association or organization.
- Being related to another credit union member.
- Being a member of a place of worship, school, labor union or homeowners' association.
Credit Union Products and Services
Credit unions offer a variety of accounts, services and products for their members.
Member Deposit Accounts
Nationally, some credit union deposit accounts pay higher interest on average than traditional banks, according to the NCUA-gathered data. Credit unions offer a range of everyday accounts, including:
- Savings accounts (also called share accounts at some credit unions)
- Interest-earning checking accounts (also called share draft accounts)
- Certificates of deposit (also called share certificates)
- Money market accounts
Member Loans
Generally, credit unions offer competitive interest rates on loan products, compared with banks. Members might borrow money from a credit union in the following ways:
- Fixed-rate mortgages
- Adjustable-rate mortgages
- Home equity loans
- Personal loans
- Used car loans
- New car loans
- Credit cards
Easy Access
Credit union members can use one of more than 3,500 credit unions nationwide through cooperative partnerships. If you're out of the area, you may be able to make deposits, withdrawals, loan payments or get loan advances at one of these shared branches.
Many credit unions provide online banking and mobile banking services, making it easy for members to manage their accounts from home or on the go.
Services may be offered by text, app, video banking or online banking.
For example, BECU offers the following via online access:
- Online budgeting tools
- Remote check deposit
- BECU Envelopes for different saving goals
- Remote debit and credit card management
- Transfer funds
- Automated savings
- Bill payment
Small Business Services
Credit unions help sustain community small businesses. Business member services can include the following:
- Business checking and savings
- Business credit cards
- Business line of credit
- Merchant services and payroll processing
- Commercial real estate loans
- Company vehicle and equipment loans
In addition to providing business products and services with low fees and competitive rates, credit unions also support small businesses through education, resources, grants and programs.
For example, in 2024, BECU partnered with Bridge for Billions to develop the BECU Inclusive Entrepreneur Program for Black, Indigenous and people of color entrepreneurs in Idaho, Washington, Oregon and South Carolina. Through the program, 12 participants received mentoring, business tools and access to seed funding to launch or grow their businesses.
Credit Union Differences
Credit unions differ from banks in some important ways.
Cooperative Model
Credit unions operate on a cooperative model designed to benefit members. Annual retained earnings are returned to members in the form of dividends — typically low fees overall, competitive savings rates and loan interest rates when borrowing.
According to a 2024 GoWest survey, credit union members received $759 million in financial benefits in 2023. BECU returned $491.6 million to members in 2024 in the form of competitive savings and loan rates and low fees.
In addition, credit union members may also benefit from a process called a "loan reprice." At BECU, for example, if your credit score has improved sufficiently and your account is in good standing, we will consider reducing your loan rate.*
A credit union's structure creates something called a "mutual assistance cycle."
Example: Suppose Emma deposits her savings of $10,000. The credit union may then loan Emma's funds to Devon.
Then, the interest paid by member Devon (along with the loan repayment), can help to fund a higher interest rate on your savings account.
Financial Goals and Education
Helping people achieve their financial goals is part of the mission of credit unions. As part of their cooperative principles, credit unions offer a wide variety of free financial education and planning opportunities to members and the broader community.
Credit unions often provide one-on-one financial counseling and online and in-person classes for adults and teens. For example, in 2024, BECU served more than 15,000 people through Financial Health programs, including more than 5,000 who attended a seminar, webinar or Financial Reality Fair.
Financial education goals can include helping members:
- Pay down debt
- Create a monthly budget
- Buy your first home
- Organize your finances
- Plan your estate
- Open a small business
- Improve your credit score
Credit unions may also offer investment services, insurance products and other financial services to support your financial goals.
Community Involvement
Credit unions focus on supporting their local communities — another important aspect of the cooperative model —with a focus on financial education, community development and charitable giving. Many are well-attuned to the local community — whether sponsoring a sports event or offering products and services tailored to their members' needs.
Credit unions may also offer scholarships, grants and other funding to benefit the regions where their members live, work, worship and attend school.
Examples of Community Involvement:
- Washington credit unions came together to fund affordable housing, offered $3.4 million in downpayment assistance, approved loans to entrepreneurs and helped address hunger, according to the 2024 GoWest survey.
- BECU donations and in-kind contributions to community organizations and partners totaled $9.2 million in 2024.
- BECU's Black Community Development Project awarded $1 million to nonprofits.
- BECU's employee program BECU Cares delivered $1.5 million to more than 1,900 community causes. Employees put in 23,000 volunteer hours and $540,000 in charitable contributions.
- Washington's credit unions contributed $4 billion and supported 27,200 jobs in the Washington economy in 2023.
- Credit unions encouraging volunteerism among employees. Washington credit union employees volunteered 78,000 hours to support 3,000 nonprofit organizations in the state.
Low-Income Credit Unions and Minority Depository Institutions
A little more than half of all federally insured credit unions are officially designated as low-income. A "low-income credit union" serves low-income members specifically.
Credit unions can apply for this designation when data shows that more than 50% of the credit union's members reside in a low-income area.
"NCUA considers supporting those credit unions to grow and thrive as central to the mission of the credit union system," according to NCUA. BECU is not a low-income designated credit union, but partners with credit unions that are, such as Express Credit Union in Seattle. Through this partnership, BECU helps Express Credit Union provide safe, affordable access to financial services for people with low and moderate incomes.
Another special type of credit union institution is a Minority Depository Institution, which offer affordable financial services to individuals and communities who otherwise lack access to those services. More than one in 10 federally insured credit unions is designated as an Minority Depository Institution, according to NCUA, with more than 6.5 million members.
To qualify as a Minority Depository Institution, the credit union must have more than 50% from any of the eligible minority groups as members, board of directors or broader community.
Eligible minority groups include:
- Asian American (including Native Hawaiian and Pacific Islander)
- Black American
- Hispanic American
- Native American (including American Indian and Alaska Native)
NCUA Insured
Credit unions and banks have different federal regulatory agencies and insurance coverage. Where you might have heard the phrase "FDIC insured" for banks, you'll hear "NCUA insured" for credit unions. This insurance covers up to $250,000 in member accounts, per person, per institution, if the credit union were to fail.
Not-for-Profit Financial Institution: History and Evolution
North America's first credit union was established in Quebec, Canada, in 1901. The first U.S. credit union followed soon after, in 1909 in New Hampshire.
Credit unions greatly expanded in the 1920s and 1930s. To help establish credit unions across the nation, 38 states and the District of Columbia enacted credit union laws between 1921 and 1935.
In 1951, federal and state-chartered credit unions were granted an exemption from the federal income tax. This allows them to redirect profits to members.
By 1952, federal credit unions grew to nearly 6,000 with more than 2.8 million members. By 1960, federal credit unions held $2.7 billion in assets combined across 9,905 financial institutions and served 6.1 million members.
However, member deposits at the time weren't insured as bank customers deposits were with FDIC insurance.
In 1970, Congress created the independent NCUA to charter and supervise federal credit unions and insure share deposits of up to $20,000. This coverage gradually increased over time.
As of the first quarter of 2025, there were 4,411 federally insured credit unions, managing $2.37 trillion in assets for 143.2 million members.
Originally, credit union members needed to be part of a very narrow type of qualifying field of membership — an occupational group having a single common bond. In 1998, U.S. legislative changes widened the types of membership qualifications available.
Choosing a Credit Union
Credit unions are poised for continued growth and innovation, with a focus on digital transformation, financial inclusion and community development. When choosing a credit union, review the following:
- Membership: Are you eligible for membership?
- Access: Whether online or in person, can you easily access services important to you?
- Services: Does the credit union offer deposit accounts, loans and cards with good rates?
- Values: Does the credit union financially support organizations or programs important to you?
- Financial education: Are there ways you can work with the credit union to reach your goals?
FAQ: Credit Union Basics
Why Do People Choose a Credit Union Over a Bank?
People might choose a credit union over a bank for a variety of reasons, including:
- Competitive rates
- Financial education programs
- Support for the community
- Not-for-profit model
- Profits returned to members
- Member ownership
Can Anyone Join a Credit Union?
To join a credit union, you must meet the credit union's membership requirements. Typically, this might mean living or working in a particular county or state, working for a specific employer or in a specific industry, or being related to an existing credit union member. You will also likely need to have a healthy checking account history. If you think there's a mistake in your checking account history, correct it before applying for a credit union account.
In Washington, anyone can join a credit union given our state's specific membership eligibility requirement.
How Do I Join a Credit Union?
To join a credit union, go to the credit union's website and ensure you qualify for membership. Most credit unions will outline "membership eligibility" to outline requirements for individuals and business owners. Next, follow the credit union's instructions to join online or in person. The credit union will describe the identification documents you'll need.
Are Credit Unions FDIC Insured?
No, FDIC insures deposits at banks in the event of a bank failure, where NCUA insures deposits at credit unions in the event of credit union failure. Like the FDIC, NCUA covers up to $250,000 per member, per credit union.
Conclusion: More Than Annual Percentage Yield
Credit unions are a unique and valuable part of the financial services industry, offering a range of benefits and services to members.
With a focus on member-owned, not-for-profit operations, credit unions provide a safe, secure financial institution for individuals, families and businesses.
*With a reprice, your rate cannot drop below the lowest current published rate. Loan products available for this benefit may change at any time, the reprice program may end at any time, and we may not be able to lower your rate with each evaluation.
The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized financial, tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation when making financial, legal, tax, investment, or any other business and professional decisions that affect you and/or your business.
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Lora Shinn
Contributor