What Is a Credit Union? How They Work, Who Can Join, and What You Get

A credit union is a member-owned, not-for-profit financial cooperative. Its members pool their savings to provide loans and financial services to each other, governed by an elected board of directors drawn from the membership. The oldest credit unions in the United States have been serving their communities for over a century. As of 2024, approximately 135 million Americans belong to one of roughly 4,600 federally insured credit unions.

Understanding what a credit union is — and how it differs from a bank — matters if you are deciding where to keep your money, take out a loan, or open a mortgage.

The Cooperative Structure

Credit unions are financial cooperatives. That means they are owned by their members, governed by their members, and operated for the benefit of their members — not for the benefit of outside shareholders.

When you open an account at a credit union, you become a member-owner. Your savings deposit is technically a share purchase, which is why credit union savings accounts are often called "share accounts." You are not a customer in the way a bank customer is; you have an ownership stake, however small, in the institution.

This ownership structure has practical consequences:

• Governance: Members elect a volunteer board of directors. Board members are typically fellow members — people who live in the community, work in the same industry, or belong to the same organization as other members. Annual meetings are open to all members.
• Profit distribution: Any income earned above operating costs and reserve requirements is returned to members, typically in the form of higher savings rates, lower loan rates, reduced fees, or dividends on shares. Credit unions do not distribute profits to outside shareholders.
• Mission: The credit union's mandate is to serve its members' financial needs, not to maximize investor returns. This structural alignment between ownership and service creates a different set of institutional incentives than a shareholder-owned bank.

Credit unions are one of the largest sectors within the cooperative economy. For broader context on financial cooperatives and banking cooperatives globally, those wiki entries provide the wider landscape.

Field of Membership: Who Can Join

One of the most common questions about credit unions is who is eligible to join. Unlike banks, which serve anyone in a geographic market, credit unions are organized around a defined "field of membership" — a specific group of people the credit union is chartered to serve.

There are three types of fields of membership:

1. Occupational or employer-based: The credit union serves employees of a specific employer or group of employers. Boeing Employees' Credit Union (BECU), Navy Federal Credit Union, and many school district credit unions fall into this category. If you work for the sponsoring employer, you are eligible.

2. Associational: The credit union serves members of a specific association, religious organization, or similar group. Some credit unions are chartered to serve members of a particular union, alumni association, or community organization. Membership in the association makes you eligible for the credit union.

3. Community or geographic: The credit union serves everyone who lives, works, worships, or attends school in a defined geographic area — typically a county, metropolitan area, or multi-county region. Community charter credit unions are the most broadly accessible type; if you live or work in the designated area, you qualify.

Many credit unions with occupational or associational origins have expanded their charters over time to include community membership. A credit union that started as an employer-based institution may now also accept membership from anyone in the surrounding county. It is worth checking directly with any credit union you are interested in, because eligibility is broader than many people assume.

The National Credit Union Administration (NCUA) maintains a searchable database of federally chartered credit unions at mycreditunion.gov where you can find credit unions by location, employer, or association and check their specific membership criteria.

Services Offered

Credit unions offer the same core financial services as banks:

• Checking accounts (called "share draft accounts" in credit union terminology) — often with no monthly fees or lower minimum balance requirements than comparable bank accounts
• Savings accounts (share accounts) — typically earning slightly higher rates than comparable bank accounts
• Certificates (CDs) — fixed-term savings products equivalent to bank certificates of deposit
• Auto loans — historically one of the most competitive credit union products; credit union auto loan rates are typically lower than bank or dealer financing rates
• Personal loans and credit cards — with rates that reflect the credit union's not-for-profit structure
• Mortgages and home equity loans — most credit unions of substantial size offer home lending products
• Business accounts and loans — larger credit unions increasingly offer small business banking services

Smaller credit unions may offer a narrower product range than large banks, while the largest credit unions — BECU, Navy Federal, Pentagon Federal — operate at a scale that supports the full range of consumer financial products.

How Credit Unions Differ from Banks

The structural difference between a credit union and a bank comes down to ownership and purpose.

Ownership: A bank is owned by shareholders who may have no relationship with the bank as customers. A credit union is owned by its members, who are also its customers. Every person with an account is an owner.

Purpose: A bank's legal purpose is to generate returns for shareholders. A credit union's purpose is to serve its members' financial needs. This difference is not merely rhetorical — it shapes decisions about fee structures, loan pricing, and how excess income is used.

Profit distribution: Bank profits go to shareholders as dividends or retained earnings that increase share value. Credit union surplus is returned to members through better rates and lower fees, or distributed as dividends on shares.

Taxation: Credit unions are exempt from federal corporate income tax because they are cooperative, not-for-profit organizations. Banks pay corporate income tax. This tax advantage allows credit unions to price products slightly more favorably than equivalently run banks — though critics note that the advantage is not always passed through to members in practice.

Deposit insurance: Bank deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor. Credit union deposits are insured by the National Credit Union Share Insurance Fund (NCUSIF), administered by the NCUA, also up to $250,000 per member per institution. Federal insurance coverage is equivalent; members' funds in federally insured credit unions are as safe as funds in FDIC-insured banks.

Regulatory oversight: Banks are regulated by the OCC (national banks), state banking departments (state-chartered banks), and the FDIC and Federal Reserve. Credit unions are regulated by the NCUA (federal credit unions) or state credit union regulators (state-chartered credit unions).

Rates and Fees: Does It Actually Matter?

In practice, do credit unions offer meaningfully better rates and lower fees than banks?

The honest answer is: it depends on the credit union and the product. NCUA data consistently shows that, on average across the credit union sector:

• Credit union auto loan rates run 1-2 percentage points below bank rates
• Credit union savings rates run slightly above bank rates for comparable products
• Credit union mortgage rates are competitive but the difference is smaller than for auto loans
• Credit union fee structures (overdraft fees, monthly maintenance fees, ATM fees) tend to be lower than large commercial bank fee structures

The biggest gaps favor credit unions in auto lending and savings rates. The smallest gaps are in mortgage lending, where the secondary market largely standardizes pricing.

Individual credit unions vary considerably. A well-run large credit union with modern digital banking infrastructure may offer better rates AND a better product experience than a legacy bank. A small community credit union with outdated systems may be harder to use, even if its rates are slightly favorable.

How to Find and Join a Credit Union

Step 1: Determine your eligible credit unions. Start with NCUA's credit union locator at mycreditunion.gov. Search by your zip code for community credit unions in your area. Also check whether your employer, union, or professional association has a sponsored credit union.

Step 2: Compare products. Review the credit unions' websites for rates on savings accounts, auto loans, and any products you are likely to use. Many credit unions publish current rates publicly.

Step 3: Evaluate the digital experience. If mobile banking, online bill pay, and ATM access matter to you, check the credit union's app reviews and ATM network. Smaller credit unions may participate in shared branching networks (CO-OP or CUServiceCenters) that give you access to thousands of branch locations nationwide.

Step 4: Open a membership account. To join, you typically need to open a savings account (the share account that establishes your membership), deposit a minimum amount (often $5-$25), and provide identification. The credit union will verify your eligibility for their field of membership.

Step 5: Participate. One of the genuine differences between a credit union and a bank is that you have governance rights as a member. Annual meeting notices, board election ballots, and financial disclosures give you a level of oversight over your financial institution that bank customers simply do not have. These rights are worth using.

The credit cooperatives wiki entry provides more background on the history and global scope of the credit union movement.

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Further reading: National Credit Union Administration (ncua.gov); Credit Union National Association (cuna.org); mycreditunion.gov (NCUA credit union locator).