A credit union is a member-owned, non-profit financial institution. A credit union is as a cooperative financial entity where members pool their resources and benefit from shared ownership.

• Member-Owned: Unlike traditional banks owned by shareholders, credit unions are owned by their depositors, who are also considered members.
• Not-For-Profit: Their primary objective is not profit maximization, but rather serving in the best interests of their membership. This often translates to better rates on loans and dividends for members.
• Financial Services Offered: Credit unions offer a variety of financial products such as savings, investments, debit cards, loans to members and online banking.

Credit unions operate on a core principle of shared ownership.

• Member Deposits: Members pool their funds mainly by share accounts. These deposits serve as the credit union’s capital base.
• Loans: Members can then borrow from this pool of funds to finance various needs. Credit unions typically offer competitive interest rates on loans compared to traditional banks.
• Profit Sharing: Any surplus income generated by the credit union (interest earned on loans minus operating expenses) is returned to members in the form of dividends based on shares or improvements to member services.

Essentially, credit unions function as a self-contained financial ecosystem where members’ deposits fuel loans for other members, and any resulting profits are reinvested for their benefit.

The key distinction between credit unions and banks lies in their ownership structure and core mission.

• Profit Motive: Banks are for-profit institutions. Their primary goal is to generate returns to shareholders. This can influence fees and interest rates.
• Member-Owned Cooperative: Credit unions, on the other hand, are not-for-profit cooperatives. They are owned by their members. This cooperative structure means profits are returned to members in the form of lower fees, higher interest rates on savings, and lower interest rates on loans.

In essence, credit unions prioritize the financial well-being of their members, while banks answer to the profit expectations of their shareholders.