What Is a Credit Union?
Credit unions are member-owned, not-for-profit financial institutions that provide many of the same financial services that banks do, including checking and savings, loans, credit cards and ATMs. However, they are uniquely different from for-profit institutions and offer special advantages:
- Member ownership – Each member of a credit union is a part owner of that credit union and is entitled to one vote at the annual meeting, regardless of how much money he or she has deposited in the credit union.
- Members come first – Because credit unions are not-for-profit cooperatives, they are usually able to offer lower loan rates, higher savings rates and lower fees than for-profit institutions.
- Special services – Credit unions serve their members and can offer special services that for-profit institutions may not always offer.Examples include small denomination signature loans under $1,000 to help members through financial difficulties, savings clubs for kids and seniors, and financial counseling.
- Volunteer leadership – Credit unions are led by a board of directors elected from the membership at the annual meeting. Board members volunteer their time and service and are not compensated.
- Credit unions conform to the above principles, and therefore are not subject to income tax and must have their own unique regulatory and share insurance system.
- Credit unions generate wealth and benefits for their members in a number of ways, and those members incur tax obligations as the benefits are distributed in the form of dividends.
- Credit unions include service to people of modest means in their business activities because of the inherent dedication of not-for-profit, cooperative financial institutions to such service, the traditions and values of credit unions, and the commitment of boards of directors to credit union values.
Global Cooperative Principles for Georgia Credit Unions
- Members, Not Just Customers – By joining a credit union, people become member/owners. Members expect more value and deserve more respect than is available in the typical customer interaction at non-cooperative financial institutions.
- Democratic Control – Members have equal influence in the voting process and equal opportunity to run for election to the board. One member, one vote. Once elected, directors have fiduciary responsibility to all members.
- Service Differentiates – Democratic control provides a decision-making environment that elevates creating value for the members above profit accumulation at the credit union. It is the dedication to providing service that differentiates credit unions from for-profit suppliers.
- "Profits" Belong to the Members – In order to grow and provide new services, credit unions generate capital by retaining a portion of earnings. These retained earnings are used for the betterment of the entire membership.
Types of Credit Unions
Credit unions are either federally or state chartered. Credit unions vary greatly in size, structure and services. Small credit unions may offer basic savings and loans. Larger credit unions may offer checking, credit and debit cards, ATM cards, IRAs and certificates of deposit, and may have several branch locations. There are three types of credit unions:
- Single common bond credit unions (occupation and associational) such as Savannah Schools FCU in Savannah or Georgia Methodist FCU in Atlanta.
- Multiple common bond credit unions (more than one group each having a common bond of occupation or association) such as Associated CU in Atlanta or TIC FCU in Columbus.
- Community credit unions serve residents of a particular area or community such as CSRA FCU in Augusta or Coosa Valley FCU in Rome.
Security of Credit Unions
The National Credit Union Share Insurance Fund (NCUSIF) was created by Congress to insure member's deposits in credit unions up to the $100,000 federal limit. Administered by the National Credit Union Administration, the NCUSIF is backed by the "full faith and credit" of the U.S. Government. The NCUSIF maintains at or near 1.30% of federally insured credit union deposits. By law, federally insured credit unions maintain 1% of their deposits in the NCUSIF. Credit unions voluntarily capitalized the Fund in 1985 by depositing 1% of their deposits into the Fund. No federal tax dollars have ever been placed in the NCUSIF and no member has ever lost money insured by the fund.
Forming a Credit Union
Credit unions are formed when a group of people work together to develop a common bond or "Field of Membership", such as occupation, association or interest, or residence within a well-defined community. The group then selects a Board of Directors, forms committees, and develops a business plan. The plan is submitted, either to NCUA or the GA Dept. of Banking and Finance for review and approval. Most credit unions, in recent history, have been formed through sponsorship by a company for its employees or through faith-based organizations such as churches.
History of Credit Unions
The first credit unions were founded in Germany in the 1840s to provide savings and borrowing opportunities to working-class people. The guiding principles were simple:
- Only people who were credit union members could borrow there.
- Loans should be for prudent and productive purposes.
- A person's desire to repay (character) would be considered as important as a person's ability to repay (income).
These principles still govern most of the credit unions in the world today.