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Owned and operated by their members, credit unions are not-for-profit cooperative institutions that promote thrift and provide access to credit at reasonable rates. Since they have no source of secondary investment capital, these institutions in the United States are also exempt from federal and state income taxes. This makes a credit union substantially different from a traditional bank.
The Federal Credit Union Act, signed into law by President Franklin D. Roosevelt in 1934, helped establish a federal system of credit unions in the United States while providing a means to charter and oversee the organizations. Today, approximately 86 million people belong to a credit union. This represents more than 40 percent of economically active adults.
To join the institution, you must be a member of an approved segment of the population. United States regulations require all credit unions to restrict their membership to a specified portion of the community, such as employees of a specific company; members of a church, alumni association, or other approved non-profit group; or people working in a specific occupation. This is known as the institution's "field of membership" or its "bond of association" and applies to the primary applicant as well as all members of his/her immediate family. However, most credit unions allow members to maintain their membership even if their circumstances change and they no longer meet the initial qualifying criteria for belonging to the organization.
Interested members must complete a short application and deposit a small amount into a checking or savings account. This allows them to own a share in the union and vote in officer elections.
While credit unions are not banks, member deposits are insured up to $100,000 US Dollars (USD) per account by the National Credit Union Share Insurance Fund (NCUSIF) and backed by the U.S. government. This ensures the institutions are a safe source for handling all of your financial transactions.
The primary advantage of membership is that these institutions generally pay higher interest rates on deposits and charge a lower interest rate on loans than what you'd find at a traditional bank. Additionally, one recent survey found that credit unions in the United States approved 69 percent of mortgage applications from low or moderate income borrowers, compared to a 47 percent approval rate for the same group at other U.S. mortgage lenders.
@Vincenzo -- credit unions can do that because the field of membership can be quite broad. It is popular to think of a field of membership as narrow, but that is not always the case.
For example, let's say you live in a city called Townsville. A credit union called the Townsville Steel Workers Credit Union has a fairly narrow field of membership -- you've got to have some affiliation with the local steel workers group to join. If, on the other hand, you have the Townsville Community Credit Union, you've got a very broad field of membership. Perhaps all you have to do is live or work in Townsville to join that credit union.
In other words, that credit
union in your town that appears to accept anybody does have a field of membership but it is a broad one. Still, it is selective -- perhaps people who live in a neighboring county can't join because they are not part of your community.
The notion that one has to be a member of a certain group is quite confusing. I know of at least one credit union in my town that will allow just about anyone to join. If the field of membership is selective, how can that be?