Frequently-asked questions about credit unions

Q: Do you have to belong to a union to become a credit union member?

A: Belonging to a credit union has nothing to do with being a “union member.” Many employers offer credit union membership to their employees. An employer’s employees may be union members, but you do not have to join a labor union to be a member.

Q: What is a credit union?

A: A credit union is a not for profit financial cooperative. Think of a credit union as the phrase “In order to form a more perfect union” rather than “look for the union label.”

Q: Why would I want to join a credit union?

A: Credit unions are not-for-profit financial cooperatives run exclusively for the benefits of the credit union members. Members benefit by paying lower rates on auto loans, credit cards, mortgages, home equity loans, home equity lines of credit, personal loans and other loan products. Members benefit by paying lower or no account-related fees.

Members also typically earn higher rates of interest on certificate savings and other deposit related accounts. Credit unions offer educational programs and financial advice to insure that members are properly and well informed about money issues and how to avoid financial pitfalls. There are no stockholder dividends to pay. Net income flows directly to the members in the form of dividends, lower loan rates, higher deposit interest rates, the elimination of fees, lower fees or the addition of new products and services that will improve the financial well-being of the credit union’s members.

Q: How can I belong to a credit union?

A: There are two types of credit unions. One has a closed membership and is based upon affiliation. For example, you must work for a specific employer or be a relative of the employer.

The other type of credit union is called a community credit. Anyone that lives or works within a given geographical boundary can join this form of credit union. There are many local community credit unions that serve the stateline region.

Q: Is there that big of difference between a bank and a credit union?

A: There is a difference. Credit unions are dedicated to the financial good health of their members.

One way to illustrate this difference is to compare year-end press releases from credit unions and banks.

In 2006, AA Credit Union sent out a press release informing its members that it would distribute bonus dividends totally $8 million to its member owners. Then, there was the Citigroup press release that reported record income of $21.2 billion. That’s the difference.

Q: Are there any differences when borrowing from a credit union?

A: There are two, very important differences. Credit unions source of funds to lend typically come from member deposits. Credit unions can invest their members’ funds in loans or government-backed securities to earn interest income. The important difference is where the loans are made.

Credit unions make loans to members in their local communities. They enable the neighbor next door to buy that new car or finance the purchase of a new home, help send his or her child to college or provide emergency money when an unexpected expense occurs.

Q: Will my funds be safe in a credit union?

A: Credit unions typically belong to an organization called the NCUA (National Credit Union Association).

The purpose of this organization is to regulate credit unions—that is to insure that sound financial practices are followed—and to provide insurance in the case of a credit union failure. The NCUA works much like the FDIC that regulates banks and insures deposits. NCUA deposit insurance rates are comparable to FDIC deposit insurance rates. Some credit unions choose not to be affiliated with the NCUA but have their deposits insured with another like organization.

from the Oct. 17-23, 2007, issue

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