Definition: What Is a Credit Union?
A “union” is a common bond that joins people or entities together.
However, what is a credit union? Well, it is a non-profit financial institution that is created through a union of members who save and borrow money from the credit union.
So what is the purpose of a credit union, then?
A credit union pools members’ deposits together so that the members’ financial needs (e.g. loans, mortgages, savings, insurance, and investments) can be met at more competitive rates than other banks can offer to members.
What Differentiates It From a Bank?
Banks and credit unions perform many similar functions like lending money and accepting deposits.
So what is it that differentiates a credit union from a bank? Although legally and legislatively, there are many major differences between the two, the primary differentiator is “clientele.”
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Credit unions only serve their members, who are also part owners of the institution.
While non-shareholders of a bank may make deposits or apply for loans and mortgages from it (bank), only credit union members may transact business with the union.
What is unique about a credit union (versus banks) is that members can volunteer to run for office (board of directors), and all members of the union have the right to vote for electing representatives on the board.
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