Explaining Credit Unions - What Does Member-Owned Mean?

7 MIN. READ

 

Key takeaways:

 

• Credit unions differ from traditional banks because they use a not-for-profit model and are owned by their members.
• This model's benefits include paying less for banking services, supporting your community, and getting guidance from representatives who care about your financial success.
• Power Financial Credit Union delivers these benefits to South Florida communities. 

What makes credit unions different from traditional banks? There is a major difference when it comes to ownership.

Unlike banks, credit unions belong to their members. This means that by joining a credit union and opening an account, you instantly become a part-owner and can participate in important decisions that guide the credit union's future.

Thanks to this business model, credit unions can offer unique perks that traditional banks don’t have.

What’s a Credit Union?

What does a credit union do? Established by the Federal Credit Union Act of 1934, credit unions are cooperative financial institutions chartered by the federal or state government.

Credit unions are like banks in the following ways:
 

• Members can save and borrow money.
• Credit union accounts are federally insured (The FDIC insures banks while the NCUA insures credit unions).
• They may offer personal and business banking choices.
• They have branches and ATM locations.

Do Their Members Own Credit Unions?

The answer is yes. Credit unions belong to their members, while banks belong to shareholders, private owners, or holding companies. Credit unions can belong to their members thanks to their structure as financial cooperatives, which means joint ownership.

It’s an important distinction because it means banks and credit unions have very different goals:
 

• Banks must answer to their private owners or investors. Their goal is to earn profits and pass this money on to these private entities.
• Credit unions exist to serve their members (also the owners). Instead of earning a profit, any excess money goes back to the members.

How Can Credit Unions Run Without a Profit?

Profit and revenues are different. Let’s examine several scenarios to better understand how banks and credit unions manage their money.

A bank is conducting a marketing campaign in your area and manages to sign up 80 new customers. This represents a 15% increase in revenue for your region, and after accounting for the cost of the campaign, the bank clears a profit of $22,000.

A few different things can happen to this money:
 

• The bank can use it to pay dividends to shareholders.
• It can go straight to the private owners as a personal profit.
• The bank can reinvest that money to open a branch in another state and run a new marketing campaign.

Let’s say a credit union sees a boost in membership and generates that same $22,000. What happens to the money?
 

• The credit union will keep enough money to cover basic operations and ensure it can offer a good experience to its members. 
• Because the credit union has a not-for-profit model, any excess money goes to the members.
• As a member, you’ll get some of that money through free services, lower banking fees, low APRs on loans, or higher interest rates on savings products.

Unlike with the bank, the money will stay in the community and support the financial health of local businesses and families like yours that need affordable banking services.
 

What Does Having a Local Focus Mean for Credit Unions?

The four largest banks in the U.S. hold more than a trillion in assets each. For banks hoping to follow in their footsteps, the priority is to develop a national presence. It’s why banks often funnel money from one community to another to open new branches and keep expanding.

Because credit unions aren’t seeking to earn as much profit as possible, they remain local and operate on a human scale. They might open new branches locally to serve their members better, but the goal isn’t to keep expanding indefinitely. 

Staying local means the money you deposit in your credit union checking and savings accounts and the low banking fees you pay contribute to a financial pool that directly benefits your community. When your neighbor or nearest small business needs a loan, your local credit union can dip into this pool and issue the funds. 

Credit unions are playing a key role in strengthening local economies and small businesses, indirectly contributing to job creation in communities like yours. In fact, getting a loan via a credit union is often easier than borrowing from a major bank for small businesses since credit unions are usually willing to examine a business’s unique financial profile and consider more factors. 

By keeping your money in a credit union, you’re also supporting a local employer that offers great career opportunities for community members. Plus, banking with local representatives creates an engaging and friendly experience.
 

What Are the Main Benefits of Credit Unions?

The credit union business model creates several benefits for members like you:
 

• Thanks to the not-for-profit model, you’re saving on banking fees, borrowing for less, and getting more out of the money you save or invest.
• Because credit unions aren’t concerned with profits, you can count on their representatives to give you sound banking advice instead of steering you toward a product that would be the most profitable for them.
• Your money does good in the community. As more members join the cooperative, available funds grow and can finance things like mortgages for new families and loans for small businesses. 
• As a member, you have a say in how the credit union is run. You can elect a board of directors that represents your interests and votes on key decisions. You can even volunteer to sit on the credit union’s board!
• Most credit unions support financial success in their community with financial literacy programs. It’s a great perk for making better financial decisions.

Understanding Credit Union Membership Requirements

Who can join a credit union? Almost everyone. While you can’t join any credit union you want, it’s easy to find a local option with membership requirements you meet.

Members are eligible to join a credit union based on:
 

• Where you live. Many credit unions operate to serve people who live in a specific geographic location.
• Who you work for. Some employers sponsor credit unions just for their employees.
• Family members. Most credit unions will allow the families of members to join.
• Being part of a group. Certain credit unions are based on membership in a group like a school, place of worship, labor union, or homeowners’ association.

The current trend is for credit unions to broaden their field of membership. Credit unions are open and eager to invite new members, allowing anyone in the community to join.
 

What Kind of Services Do Credit Unions Offer? 

As a credit union member, you can access financial services like loans, checking and savings accounts, credit cards, and more. These products often offer better rates and lower fees than you would receive at for-profit banks.

The National Credit Union Share Insurance Fund insures deposits at credit unions. Deposits are insured for up to $250,000 per ownership category. This amount is the same as the protection offered by the Federal Deposit Insurance Corporation (FDIC), which insures banks.

Because they operate locally, credit unions tend to have fewer locations than banks. However, utilizing a shared branch network allows members of one credit union to perform a range of transactions at another institution. This gives members direct access to their money in over 4,000 federally insured credit unions across all 50 states. This provides members with easy access to their money wherever they go. In fact, credit unions typically have a stronger presence at the community level compared to major banks.

What do credit unions do to offer a modern banking experience? Most credit unions have embraced digital transformation and are actively investing in tech solutions such as online banking tools or AI-powered experiences.

Major banks might have had an advantage in the past, but credit unions have successfully established themselves as innovative financial institutions with convenient banking options.

Modern online banking and mobile banking apps allow you to securely use your credit union services wherever you are, 24/7. Some of the transactions that members can handle with their devices may include:
 

• Digital wallets. Link a credit union debit or credit card to your digital wallet so payments can be made through a smart device such as a smartphone and used for in-store and online purchases.
• eStatements. View monthly statements online or through the mobile app.
• Bill pay. Set up automatic payments for utilities, internet, and other monthly expenses.
• eDeposit. Skip the trip to the ATM or branch and deposit checks digitally through the mobile app.
• Live chat. Get help from customer service agents on a mobile device.
• Money transfers­. Send money quickly and safely at no charge.

Credit union members receive the same level of access, products, and digital services that banks offer their customers. At a credit union, however, the human connection and level of service are often more personalized.

Because credit unions are smaller, they can often get to know their members better. Their focus is on helping members with their financial needs at an individual level. Some may offer their members training and counseling to help them understand more complicated financial topics.
 

Join a South Florida Credit Union With PFCU 

If you live, work, or go to school in South Florida, you can join Power Financial Credit Union today. Join a community of nearly 35,000 members and enjoy the benefits of a personal member-first approach with a full platform of traditional branches and state-of-the-art mobile banking services.

Get all the resources and personalized guidance you need on your journey to financial success and stability, or explore our wide range of affordable banking products designed to reflect the varied needs of the South Florida community, including but not limited to checking accounts, savings products, mortgages, personal loans, and investment options.

Contact us to learn more about the perks of membership or to locate the nearest Power Financial Credit Union branch.
 

FAQs About Member-Owned? 

Who owns credit unions?

Credit unions are financial cooperatives owned by their members via a joint membership model. 
 

What type of financial institution is owned by its members?

Credit unions are member-owned financial institutions. As a member, you have joint ownership in the credit union and have a say in important decisions. 
 

What does it mean to be a member of a credit union?

This means you have joint ownership of the credit union and use its banking products.
 

Where do credit unions get their money?

Credit unions get their money by charging reasonable banking fees and interest for their different banking products. Unlike traditional banks, the goal is to collect enough to keep the credit union running rather than earning as much profit as possible.