What Is a Credit Union -- And Is It Right for You?

Though financial cooperatives have a long history, most consumers are unable to answer the simple question of exactly what is a credit union (and what do they offer?). Here's a definitive guide.

Apr 19, 2014 at 12:30PM

Remember the $5 debit card fee fiasco in 2011 from Bank of America? The subsequent ire from frustrated customers resulted in the creation of a new kind of holiday -- Bank Transfer Day. On November 5 that year, customers were encouraged to leave their big banks in favor of credit unions. Though the holiday has fizzled since then, plenty of customers are still making the switch. But before you say sayonara to your current bank, what is a credit union and do its services fit your financial needs?

What it is
At its core, a credit union is an organization that allows a collection of like-minded members to pool their finances and support one another through lending and savings. As a financial cooperative, credit union members are part-owners of the business, contributing to the overall financial health and stability of the group.

Members for any given credit union are restricted, with requirements often centering on employment, community, or membership of an organization or association. Nevertheless, over 93 million Americans were members of a credit union in 2012, a record membership level.

What it's not
Credit unions are not-for-profit institutions, meaning that there are no shareholders looking for capital distributions. Though this designation prevents the need for credit unions to pay state of federal taxes, don't confuse them with non-profit organizations.

In order for any financial institution to maintain lending and service capability, a profit is necessary. But unlike traditional, publicly owned banks, credit unions return any profit made back into the organization or to members in the form of a dividend. Often, the profit facilitates lower account fees, lower rates for lending, and higher interest rates for savings accounts.

What it provides
Think of the services provided by the nation's banks -- checking and savings accounts, loans, and other financial services -- you'll find all of those are generally available through a credit union.

What you won't find is a complicated list of account offerings. Unlike banks, which have to cater to a large variety of customer needs, leading to copious offerings for any given type of account or loan, credit unions will typically only provide one or two options to members. This not only streamlines operations, but can lead to reduced fees and better terms for members.

With insurance through the National Credit Union Administration or private insurers, deposits are protected. The NCUA offers $250,000 in protection for member accounts.

Expansions in online banking and other technological developments have recently allowed credit unions to better compete with banks, which had previously had a lock on these types of tech offerings.

One other thing that credit unions can provide is a sense of community. With a select group of people allowed to join, members often report a more personalized experience -- a key distinction within the financial sector.

Better focus?
One of the key differences that sets a credit union apart from the nation's traditional banks is a general motto: "People helping people." Since credit unions are member-owned and operated, there is a higher concentration on customer service and satisfaction.

Based on 2013 data from the American Customer Satisfaction Index, credit unions far surpass banks in terms of customer satisfaction ratings. Topping out at an 85% satisfaction rating, credit unions beat the banks by a solid seven-point margin. The nation's banks may have had a better year, with a 1.3% increase in their rating, but credit unions tripled that improvement.

As a not-for-profit business, credit unions are truly focused on the improvement of its members' financial health -- since any gains will help the collective at large. This facilitates an environment that encourages practices that better serve its members.

Is it for you?
Unless you have a complicated financial situation that requires specialized accounts or attention, a credit union will likely meet your banking needs.

Though the nation's banks previously had a lock on convenience, most credit unions are on par these days. Your credit union may be focused in a small geographic region, but many offer ATM fee reimbursements or agreements with other financial institutions, so you're not limited on where you can access your money.

To check out if you qualify for membership at a local credit union, go to mycreditunion.gov to learn more and find the right fit for you.

Big banking's little $20.8 trillion secret
It's no secret that customers are more and more dissatisfied with their banks. But investors may not be that far behind, either.

Unfortunately, you can't invest in a credit union, but there's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banks. That's bad for them, but great for investors. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. To learn about about this company, click here to access our new special free report.

Editor's note: A previous version of this article incorrectly stated the FDIC's maximum insured amount was $100,000. The Fool regrets the error.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

Something big just happened

I don't know about you, but I always pay attention when one of the best growth investors in the world gives me a stock tip. Motley Fool co-founder David Gardner (whose growth-stock newsletter was rated #1 in the world by The Wall Street Journal)* and his brother, Motley Fool CEO Tom Gardner, just revealed two brand new stock recommendations moments ago. Together, they've tripled the stock market's return over 12+ years. And while timing isn't everything, the history of Tom and David's stock picks shows that it pays to get in early on their ideas.

Click here to be among the first people to hear about David and Tom's newest stock recommendations.

*"Look Who's on Top Now" appeared in The Wall Street Journal which references Hulbert's rankings of the best performing stock picking newsletters over a 5-year period from 2008-2013.

Compare Brokers