Credit Union

A credit union is a cooperative financial institution that is owned and controlled by its members. Credit unions differ from banks and other financial institutions in that the members who have accounts in the credit union are the owners of the credit union.

Credit union policies governing interest rates and other matters are set by a volunteer Board of Directors elected by and from the membership itself. Only a member of a credit union may deposit money with the credit union, or borrow money from it. As such, credit unions have historically marketed themselves as providing superior member service and being committed to helping members improve their financial health.

Credit unions may be viewed as non-profit organizations, or alternatively as for-profit enterprises charged with making a profit for their members (who receive any profits earned by the cooperative in the form of dividends paid on savings, which are taxed as ordinary income, or reduced interest rates on loans).

Credit unions typically pay higher dividend (interest) rates on shares (deposits) and charge lower interest on loans than banks. Credit union revenues (from loans and investments) do, however, need to exceed operating expenses and dividends (interest paid on deposits) in order to maintain capital and solvency. Often credit unions have a lower cost of funds due to a higher proportion of non/low interest bearing deposits, than typical commercial banks.

Credit unions offer many of the same financial services as banks, often using a different terminology; including share accounts (savings accounts), share draft (checking) accounts, credit cards, and share term certificates (certificates of deposit) and online banking.

Credit unions exist in a wide range of sizes, ranging from volunteer operations with a handful of members to institutions with several billion dollars in assets and hundreds of thousands of members.

Market size

Based on data from the World Council of Credit Unions, at the end of 2006 there were 46,377 credit unions in 97 countries around the world. Collectively they served 172 million retail members and controlled US $1.1 trillion in assets. Note that the World Council does not include data from co-operative banks, so that for example some nations generally seen as the pioneers of credit unionism (including Germany, France, Holland and Italy) are not included in their data.

Membership restrictions

Governmental regulatory agencies require that credit unions restrict their membership to defined segments of the population, such as people who live, work, worship, or attend school in a well-defined geographic area; employees of specific companies or trades; members of specific non-profit groups (alumni associations, conservation or other advocacy organizations, lodges, churches, or the like); or a particular occupational group (teachers, doctors, etc.)

Links

Financial Services Industry

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