Credit Union 101

Credit Union 101Credit Unions are kind of a mystery.

On one hand, there are over 7,000 credit unions in the U.S. alone – and thousand more in over 100 countries all across the globe.

And those 7,000+ financial institutions serve a whopping 96 million members (or 43.7% of the economically active population), with total combined assets of well over a trillion dollars. Yes, that’s trillion with a t. And, yes, that’s a lot.

On the other hand, if you’re not a member, or have a parent who’s a member, or are just really into the rules and regulations of financial institutions, chances are you probably don’t have a real strong understanding of what a credit union is and what makes it different than a bank.

If that describes you, well, rest assured – you’re not alone. Before I started working at a credit union, my own personal knowledge was pretty limited.

And while banks and credit unions are both financial institutions, there’s a big difference in ownership, governance, philosophy, and what they do with the profits earned from your money.

To help get you up to speed, in this post I’ll be taking an in-depth look at some key takeaways about credit unions: what they are, how they started, how they’re different from banks – that sort of thing.

The History
What better place to start than with the history of the Credit Union?

Interestingly enough, the first Credit Union can be traced back to Germany in 1860’s. Two gentlemen, Herman Schulze-Delitzsch and Friedrich Raiffeisen, had slightly different takes on the same philosophy. And that philosophy – people pooling their money together to act as a co-operative for the good of all involved – is today followed by thousands of credit unions across the world.

Because of crop failure and famine, the farmer of the duo (that would be Schulze-Delitzsch, for those of you keeping score at home) organized a co-op owned mill and bakery that sold bread to its members at a much lower price. Because that initial co-op was so successful, Schulze-Delitzsch then applied the same concept to credit for members.

At roughly the same time, Friedrich Raiffeisen used a similar co-operative idea to provide famers credit for financing their farming needs, such as livestock, equipment, and seeds.

Credit Unions eventually made their way to America in the early 1900’s. Alphonse Desjardins, a journalist and publisher, started the movement by offering members co-operative access to credit to stop loan sharks preying on people with extremely high interest rates. And in 1934, President Roosevelt signed the Federal Credit Union Act into law – legally authorizing the formation of federally chartered credit unions in America.

What You Need to Know
Credit unions are member-owned, not-for-profit financial cooperatives. And they’re not just a place that your grandparents go for lower interest rates on car loans.

They’re a place where people can pool their money together for the financial benefit of all members. Credit unions aren’t fee-driven. They’re member-driven, giving people the direct control over their money they need to achieve financial freedom.

Credit Unions operate under seven guiding principles, including:

1. Voluntary and open membership
2. Democratic elections that allow members to appoint a board to voice concerns
3. Co-operative ownership and member economic participation
4. Autonomy and independence
5. Education, training and information for members
6. Co-operation among co-operatives, including other credit unions
7. Concern for community

Unlike banks, credit unions do not seek a profit to pay shareholders and board members. Credit Unions simply exist to serve their members’ financial needs in whatever way possible. Now I don’t know about you, but I think one philosophy stands head-and-shoulders above the other.

Credit Unions are insured by the National Credit Union Administration (NCUA), so your money has similar protections as with banks backed by the FDIC. But like when shopping for a bank, it’s a good idea to make sure the credit union you’re thinking about joining is an active NCUA member. S0 look for signs in the lobby or verbiage on their website.

The Wrap Up
The first credit unions were founded way back in the 19th century as a way for people to avoid high-interest rates and excessive profit-taking. And as a way for people to get the most benefit from their money.

Today, there are over 7,000 credit unions in the U.S. alone. That fast growth speaks to credit unions’ unique value proposition. They’re not-for-profit financial co-ops that exist solely to serve members and help them meet their financial needs.

This post isn’t an endorsement. I know the decision on where to bank is a personal one, and is different for every person.

But it never hurts to consider all your personal financial options. Things like organizational philosophy matter when it’s your money we’re talking about. So the next time you’re searching for a new financial institution, considering credit unions – a not-for-profit, co-operative alternative – can be a really smart play.

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