What makes a Credit Union a Credit Union? Is it important? Why? These are questions that I hear a lot. Like the Fraternal clubs of old, some people my age just don’t get the whole Credit Union idea. In it’s simplest form, a Credit Union is a club. Each account holder is a member and holds a membership account. This is a lot like owning a share of the Credit Union. It gives you the right to vote in most of the more important issues like mergers and board elections.
Because of their structure, Credit Unions qualify as not-for-profits. They aren’t Non-profits like most charitable organizations, but they garner fairly significant tax breaks as long as they do not earn profits. Sounds like a pretty poor business plan, but in reality, it works out pretty well. Some of the profits go towards growth, such as new branches, equipment, etc… but a good portion of that profit gets paid out to the members in the form of lower interest rates, higher savings rates, and many other benefits that you won’t get at most banks.
Another tidbit that most people don’t know is that while your money isn’t insured by the FDIC, it is still insured by a similar Credit Union organization called the NCUA.
So what are the downsides to a Credit Union?
A Credit Union’s tax status adds quite a few regulations that a Bank does not have. Many Credit Unions are required to operate within a “field of membership”. Depending on their charter, that means that a Credit Union may open membership accounts for people who live within a certain distance from the Credit Union branch. In many cases this is 50-70 miles. Goes a long way to explaining why Credit Unions are usually not a national brand like some banks we know.
Many Credit Unions are restricted as too what they can and cannot do. For instance, a Credit Union may only own property if there are immediate plans to build a branch or move a branch to that property.
Do you belong to a Credit Union? I do, and I can clearly see some of the benefits. As I do more posts here on A penny saved…, however, I am beginning to see the benefits of having multiple accounts. A local account at my Credit Union along with a high yield savings, and my PayPal account for Ebay. How many accounts do you have?
[tags]credit union, bank accounts, membership, bank, savings, credit[/tags]
