-
As non-profit cooperatives, credit unions are owned by their depositor members, not by shareholder investors. They don't operate to create profits, so they can lend money at lower rates and pay higher rates to their depositors.
History
During the Great Depression of the 1930s, it was difficult for people to get loans. Different interest groups created non-profit cooperatives where their members deposited money, invested it in secure investments, and lent money to other members.
Function
Many credit unions no longer restrict their memberships to employees of certain companies or certain labor unions. The cooperative structure is attractive to many people seeking a conservative place to deposit their money and receive higher interest and lower loan rates than in a commercial bank. So, many credit unions are open to membership by the general population of a specific area.
Benefits
The conservative image of credit unions makes them attractive to depositors seeking safety during economic crisis. In those uncertain times, people appreciate the higher-interest-rate savings vehicles available at credit unions, as well as their federal deposit insurance.
Considerations
Federal credit unions and most state-chartered credit unions have deposit insurance similar to FDIC insurance in banks. It is called the National Credit Union Share Insurance Fund (NCUSIF).
Misconceptions
Credit unions are not failure-proof. Some memberships vote to make riskier loans or experience severe cash outflows because they serve the employees of a company that goes out of business. Credit unions can go out of business the same as commercial banks.
Source:
Altoona Mirror: "Residents Bank on Credit Unions" by Walt Frank, 12/7/2009
National Credit Union Administration
The Biz Press: "How has the current financial crisis impacted our local credit unions?" 11/12/2008
More Information:
Copyright 2023, Wired Ivy, LLC