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What is a Credit Union |
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A credit union is a not-for-profit cooperative financial institution, owned and controlled by the people who use its services. These people are members and they have a voice in how the credit union operates to ensure that all members are represented and served fairly. Credit unions serve groups that share something in common, such as where they work, live, or go to church. They exist to provide a safe, convenient place for members to save money and to get loans at reasonable rates. The credit union idea originated in 1849 in Germany when poverty-stricken farmers and workers pooled their money to make loans to one another. |
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Key Differences Between Credit Unions and other
Financial Institutions |
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Like credit unions, other financial institutions, such as banks or savings and loans, accept deposits and make loans. But unlike credit unions, they are in business to make a profit. Banks and savings and loans are owned by groups of stockholders whose interests include earning a healthy return on their investments.
Any earnings made by credit unions, after ensuring reserves, are distributed to members in the form of dividends, reduced interest charges, and added or improved services. Credit unions have no inner group of stockholders who benefit personally from the success of the credit unions. All members benefit from the success of a credit union.
Structure
Credit unions are member-owned, non-profit financial cooperatives that offer services to their members.
Banks are for-profit, board and stockholder controlled, financial corporations that offer a wide variety of financial, investment, insurance and real estate services to their customers.
Credit unions operate under a one member, one vote system.
Bank stockholders hold influence based on the total value of their stocks. Bank customers do not own a financial interest in the bank.
Volunteer, unpaid boards oversee most credit unions.
Bank boards are generally compensated for their service.
The earnings of a credit union, minus operating expenses, are returned to the members in the form of higher interest rates and lower loan rates.
The profits of a bank, minus operating expenses, are divided among the stockholders of the bank.
Taxes
Credit unions do not pay federal income tax on the earnings of the credit union but do pay all other relevant taxes such as payroll, property, and sales taxes.
Banks do pay federal income taxes on corporate profits, although there are many banks that also qualify for tax exempt status under Subchapter S of the IRS Code.
Congress granted credit unions a federal tax exemption based on their unique structure as non-profit cooperatives and to provide financial services to those of modest means.
Banks do not have a tax exemption because they are a for-profit business intended to provide profits to their stockholders. Their customers own no financial interest in the bank. (Banks have paid more in dividends to stockholders than they paid in income taxes each of the last eight years. If banks didn't have stockholders who demand a market rate of return, they would be more competitive.)
Membership
Under federal and state laws, most credit unions (90 percent) may only offer membership to individuals who are members of a select group that share some type of common bond. (Employees at a given company are a good example. A credit union can include, subject to regulatory review, any number of these groups.)
Banks face no restrictions on whom they serve.
Affordability
Credit union services may be available to members for a deposit of as little as $5.
Banks usually require a minimum deposit of $50 to $100 to open an account. |
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Facts and Statistics |
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Market Share
As of 2005, credit unions hold approximately 6.8 percent of the total financial institution assets in the United States.In 2005, banks' total market share rose from 78.4 percent to 93.2 percent.
During the same time period, North Dakota credit unions held approximately 8.3 percent of the total financial assets in the state, while banks held 91.7 percent of the market share. South Dakota credit unions held approximately 0.4 percent of the total financial assets in the state, while banks helpd 99.6 percent of the market share.
Size
The average size of a credit union in the U.S. in 2005 was $75.7 million. The average size of a bank in the U.S. was over $1 billion.
The average size of a credit union in North Dakota is $25.1 million, with combined assets of $1.4 billion. The average size of North Dakota banks is $161.8 million, with combined assets of $16.1 billion.
The average size of a credit union in South Dakota is $27.7 million, with combined assets of $1.5 billion.The average size of South Dakota banks is $4.7 billion, with combined assets of $433.4 billion.
Profitablility
While credit unions are not-for-profit, the banking industry is the most profitable industry in the U.S. according to the American Petroleum Institute. For the last five years, banks earned 17.0 cents per $1 of sales.
Number of Credit Unions
As of June 2005, there were 58 credit unions in North Dakota; 20 are federally-chartered and 38 are state-chartered. There were 55 credit unions in South Dakota. The total number of credit unions in the U.S. is 9,037.
Membership
Nationally, more than 86 million Americans are members of a credit union. In North Dakota, nearly one out of three individuals belongs to a credit union, or 196,431 people. In South Dakota, nearly one out of three individuals belongs to a credit union, or 229,135 people.
Members Save More Money With a Credit Union
The Credit Union National Association (CUNA), estimates that North Dakota credit unions save their members an average of $53 per member, or $101 per member household, each year compared to other financial institutions. South Dakota credit unions save their members an average of $59 per member, or $112 per member household.
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What Products and Services do Credit Unions Offer? |
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Most credit unions provide all of the products and services that other financial institutions provide with the added value of outstanding customer service. Credit unions provide saving and loan options as well as checking accounts and credit cards. In addition, most credit unions are offering more and more convenience such as online capabilities that allow members to have access to their accounts online, anytime. Many credit unions also offer ATM service in several different locations.
Remember, due to the credit union structure, the earnings made by the credit union go back to the member in the forms of higher savings rates, lower loan rates and added or improved products and services. Check out a credit union in your area today. |
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The Credit Union Difference |
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New federal laws and regulations are changing the structure and face of the financial service industry. In this time of accelerating change, it is important to truly understand how credit unions are unique and different, and why we remain a necessary and extremely popular financial alternative for more than 79 million Americans.
• Not-for-profit Credit unions are not-for-profit financial cooperatives. We exist to serve our members, not to make a profit. Unlike most other financial institutions, credit unions do not issue stock or pay dividends to outside stockholders. Instead, earnings are returned to our members in the form of lower loan rates, higher interest on deposits, and lower fees.
• Taxation. Credit unions do pay taxes—payroll taxes, sales taxes, and property taxes. Congress exempts credit unions from federal income taxes. The exemption was established in 1937, affirmed by statute in 1951, and re-affirmed in 1998 in H.R. 1151, the Credit Union Membership Access Act, which states:
“Credit unions, unlike many other participants in the financial service market, are exempt from federal and most state taxes because credit unions are member-owned, democratically operated, not-for-profit organizations generally managed by volunteer boards of directors and because they have the specified mission of meeting the credit and savings needs of consumers, especially persons of modest means.”
• Ownership. Credit unions are economic democracy. Each credit union member has equal ownership and one vote—regardless of how much money a member has on deposit. At a credit union, every individual is both a member and an owner.
• Volunteer Boards. Each credit union is governed by a board of directors, elected by and from the credit union’s membership. Board members serve voluntarily.
• Membership Eligibility. By current federal statute, credit unions cannot serve the general public. People qualify for a credit union membership through their employer, organizational affiliations such as churches or social groups, or a community through a community-chartered credit union.
• Financial Education for Members. Credit unions assist members to become better-educated consumers of financial services. Additionally, the Credit Union National Association, CUNA, partners with the National Endowment for Financial Education, a not-for-profit foundation, to expand financial education among high school students. A national study shows that just ten hours of personal finance education can positively affect students’ spending and savings habits for a lifetime.
• Social Purpose: People Helping People. Credit unions exist to help people, not make a profit. Our goal is to serve all of our members well, including those of modest means—every member counts. Our members are fiercely loyal for this reason. They know their credit union will be there for them in bad times, as well as good. The same people-first philosophy causes credit unions and our employees to get involved in community charitable activities and worthwhile causes—just ask. |
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