Credit Union
Definition
A nonprofit, member-owned financial cooperative that provides banking services with typically lower fees and better rates than commercial banks, as profits are returned to members.
Credit unions are financial cooperatives owned by their members rather than shareholders. Because they don't need to generate profits for outside investors, credit unions typically offer higher savings rates, lower loan rates, fewer fees, and more personalized service than commercial banks.
To join a credit union, you must meet eligibility requirements — often based on employer, geographic area, military service, or membership in an associated organization. Some credit unions have broad eligibility that nearly anyone can meet. Deposits are insured by the NCUA (National Credit Union Administration) up to $250,000, the same coverage level as FDIC for banks.
Rate advantages are real but vary. Credit unions offer average savings rates 0.25-0.50% higher than banks and loan rates 0.50-1.00% lower. For a $300,000 mortgage, a 0.5% rate difference saves roughly $30,000 over 30 years. Auto loans, personal loans, and credit cards also tend to have better rates at credit unions.
The tradeoffs include: smaller branch and ATM networks (though many credit unions participate in shared branching networks with 5,000+ locations), less sophisticated mobile apps and technology, and potentially slower adoption of new features. Large banks excel at technology and convenience; credit unions excel at rates and personal service.
Many financial advisors recommend using both: a credit union for savings and loans (better rates), and a large bank or fintech for daily transactions and technology features. You can maintain accounts at both to get the best of each world.
Where this appears in Clarity
Clarity automatically tracks and calculates these concepts across your connected accounts.
Related Terms
Frequently Asked Questions
Are credit unions as safe as banks?
Yes. Credit union deposits are insured up to $250,000 by the NCUA, providing the same level of protection as FDIC insurance for banks. Credit unions are also subject to federal regulation and examination. The insurance has never failed to protect depositors.
Should I switch from a bank to a credit union?
Consider a credit union if you want better savings rates, lower loan rates, and fewer fees. You don't have to fully switch — many people keep a bank account for convenience and technology while using a credit union for savings, CDs, and loans where the rate advantage matters most.