The inspiration for credit unions originally came from cooperatives, which were started as a way to combat poverty and high interest rates, with members of the cooperative pooling their money to operate a cooperative store. Credit Unions became popular in the United States after Congress passed the Federal Credit Union Act of 1934.
The fundamental principles of a credit union still exist today: people pooling their savings to create a valuable credit resource not otherwise available; promoting financial literacy and helping members achieve financial health. This uniqueness separates a credit union from a bank. The credit union difference is in the structure.
Credit Union:
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Member-owned, non-profit financial cooperative offering a variety of services to its members
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Each member is an equal owner, with one vote
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Volunteer Board of Directors, elected by the membership
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Earnings, less operating expenses and reserves, are returned to members-owners in the form of higher dividend rates, lower loan rates, no or lower fees and improved services
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Credit unions may only offer membership and financial services to individuals or corporations who are within its defined field of membership
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Credit Unions can build capital only through retained earnings
Bank:
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For profit financial corporation offering a variety of services to its customers
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Stockholders hold influence based upon the number of shares they own; customers do not have a financial interest in the bank
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Compensated Board of Directors, chosen by stockholders
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Bank profits, less operating expenses and reserves, are divided among the stockholders of the bank
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Banks have no restrictions on who they serve
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Banks obtain capital through investments by shareholders
Credit union members have ownership in the Credit Union and share in its success. The better a credit union performs the more money it can return to its members in the form of higher savings rates, lower loan rates and free/low cost services.