Understanding Credit Unions

A credit union differs from a bank in that it is a non profit organization formed to provide financial services to their members and employees. It is a financial institution that is owned and controlled by people who use its services. They are sponsored by an employer or association and you must be a member or an employee to bank there. Some credit unions are open to the general public but others have restrictions on who can become a member.

Just as banks do, credit unions collect deposits, provide loans, and other financial services to their customers. Because they only offer services to a limited range of people, they can be very selective about whom they lend money to. With less risk there are lower fees charged for services performed by the credit union. Lower fees on chequing accounts, processing fees, loan fees, and other miscellaneous fees are offered with a credit union account than with a larger bank. Because credit unions are non profit they use all of their proceeds towards benefiting their member services. These organizations do not have shareholders to answer to and therefore they can offer higher interest rates with lower fees.

The size of a credit union can affect the services they offer and the fees that are charged. Some smaller credit unions may only provide savings and chequing accounts without providing loans, credit cards, or investment opportunities. Other credit unions focus on targeting a specific group of people such as low income families or aboriginals.

Before deciding between a bank and a credit union, evaluate your financial needs. If you are looking to save on fees and are not concerned with convenience or limited services then a credit union may be for you. There are a limited amount of credit unions open to the general public and you may need to shop around a bit. On the other hand, if you like having options for investments, loans, financial services, and convenient hours you may want to bank with a larger financial institution.