How Credit Unions Work

Self-governed and member-owned, credit unions offer benefits designed to help members.

Though credit unions are often equated to banks, there are actually significant differences. While banks have customers and operate for profit, credit unions are not-for-profit cooperatives that offer products and services to a defined field of membership. That “field of membership” might be everyone from a certain place of employment, a church, school, community or other particular group.

What makes credit unions different?

Credit unions are owned and governed by their members. So instead of answering to shareholders and investors, a credit union is member-focused—credit union policies and issues are decided in a way that best serves the general membership. As the cooperative grows and makes profits, those profits are passed back to members through lower loan rates, higher dividends on deposits, and expanded financial products and services.

How credit unions operate

All members of a credit union own one share of the cooperative, regardless of amount invested. The cooperative is governed by a board of directors, which is made up of volunteers elected by fellow members. This self-governing attribute helps ensure that credit union policies and decision-making maintain a member focus and serve to benefit the membership at large.

Credit Unions vs. Banks

Credit Unions   Banks
Providing services to members Purpose Providing services to customers at a profit
Not-for-profit cooperatives owned and operated by members who own an equal share of the organization Definition Businesses owned by stockholders
with the intention of making money
from their investment
Democratically structured. Each member has one vote, regardless of the level of personal investment Structure Depositors have no vote; only stockholders may vote on goals, functions and services
Directors are elected from among the membership and are unpaid volunteers Directors Directors are elected by stockholders
and paid for their time
Earnings are returned to members in the form of dividends, higher savings rates, lower loan rates and improved services Earnings Earnings are returned to stockholders

More than 6,956 credit unions in the United States, comprised of nearly 100 million members

Credit unions in the United States have approximately $1.03 trillion in combined assets


More than 6,931 banks and savings & loans in the United States with more than 270 million customers

Combined, banks and savings & loans have more than $14.23 trillion in assets



Credit unions first began in England in the early 19th century. They expanded to Germany, Quebec, and then in the early 1900’s, crossed to America. The first U.S. credit union opened its doors in 1909 in Manchester, New Hampshire.  

In 1915, the North Carolina General Assembly passed the Credit Union Act. At that time there were tough economic stresses, particularly for North Carolina farmers. The credit union philosophy served as a logical answer to boost the agricultural economy, and the idea quickly caught on.

In 1916, our state established more credit unions than any other state in the South. By 1917, we had fourteen credit unions. One establishment quickly followed another, each promoting thrift and savings along the way…for adults and children alike.

A few years later, the Great Depression hit. President Roosevelt signed the Federal Credit Union Act in 1934, which resulted in a national system that chartered and supervised federal credit unions. The credit union movement helped the economy and grew steadily throughout the ‘40s and ‘50s. By 1960, the U.S. had more than 10,000 federal credit unions—and more than six million members! Today, there are more than 55,000 credit unions around the world.

Insurance and safety of funds

All funds on deposit with a credit union are federally insured by the National Credit Union Administration (NCUA) for up to $250,000 and separate coverage up to $250,000 for IRAs. This level of insurance coverage is permanent. An additional layer of deposit security is added with audits—each credit union is subject to inspections from internal and external auditors.

Political advocacy

Credit unions as a whole are rooted in the advocacy of people helping people. From offering better rates that raise standards of living, all the way to lobbying for national change, credit unions tend to work diligently in the advocacy arena. We’re all in this together, whether members of a single credit union or operating as a whole because change that affects one, affects all, The best way to stay proactive is to stay knowledgeable and politically involved. 


One basic philosophy of credit unions is to serve their members. Part of this philosophy is volunteering. The board of directors is a volunteer board and the supervisory committee members who safeguard member assets are volunteers. Volunteerism is a key component of all credit unions. It is because of the assistance of dedicated individuals who give their time and energy that the credit union movement has propelled forward and become what it is today.


Share: an amount required for deposit to join a credit union; this amount also represents ownership. Each member receives one share of credit union ownership when they join.

Dividend: Any declared or prospective earnings on a member's shares in a credit union to be paid to a member's account.

Member: an individual who maintains his share in the credit union. Each member has voting privileges and all members are equal.

Field of Membership: the defined area from which members can join. This area might be a particular profession, place of employment, church, community, etc. The field itself is defined, but membership is all-inclusive within that field.

NCUA (National Credit Union Administration): A federal agency that oversees the regulation of federal credit unions.

Supervisory Committee: a committee comprised of credit union members with the purpose of safeguarding member assets

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