The year was 1934 – the very height of the Great Depression. Think: The Dust Bowl, breadlines, a stock market still not recovered from its 1929 crash and belt-tightening on an unprecedented scale. But 1934 was also the year that President Franklin D. Roosevelt signed the Federal Credit Union Act into law.
In the years since, credit unions have survived bear and bull markets alike, consistently delivering benefits to their members. But how? One of the easiest ways to answer this question is to examine how credit unions differ from banks.
A bit of history
To understand the role that credit unions play in a 21st Century economy, it important to review the circumstances that led to their becoming a significant feature of the nation’s economic landscape.
The idea of a credit cooperative originated in the 19th Century with a group of English textile workers. It became a force in early 20th Century America when Massachusetts passed the Massachusetts Credit Union Act in 1909. Other states soon followed suit.
However, it wasn’t until the Roaring Twenties that the U.S. experienced the kind of rapid economic growth that could give rise to an alternative to traditional banking institutions. The 1920s were a time of peace and prosperity. Modernity’s spirit of technological innovation also brought automobiles, labor-saving household appliances and other goods to the marketplace, driving a new consumer economy.
With this boom came a need for affordable consumer credit. However, banks of the time focused on commercial interests rather than the financial needs of working-class families. Credit unions stepped in to close this important gap.
Member versus customer
Just like our Jazz Age predecessors, when you choose to do business with a credit union, you choose to become more than a customer. You choose to become a member – someone with an ownership interest in the institution. The money you deposit represents your share, and stake, in the cooperative. The credit union pools member funds to provide loans to other members and pay its operating costs. Earnings generated by loan activity are then apportioned to members as dividends, similar to interest paid on a bank account.
Credit unions are not-for-profit entities
Banks operate under an obligation to turn a profit for their shareholders. If a bank is not profitable, it can and will go out of business. That’s why bank customers can typically expect lower returns on deposits, higher interest rates on loans and higher fees for services. Credit unions are concerned with solvency, not with turning a profit. Therefore, a credit union can offer the same services as a bank – mobile deposits, bill pay applications, auto and home loans, debit and credit cards, etc., at a lower cost to its members.
Credit unions are local
Credit union members are also members of a community. They are your neighbors and co-workers. Because they are community-based, credit unions also often spearhead and participate in local philanthropic efforts. Major banks oversee branches across the globe, and those branches seldom tailor their services. By contrast, credit unions are in constant conversation with their members about their specific needs. And, while bank dividends are distributed to distant shareholders, credit unions distribute their earnings to members and create incentives for those funds to circulate throughout the community.
Credit unions are democratic and autonomous
When you join a credit union – and regardless of the size of your account – you get to have a say in how the institution conducts its business. The credit union’s board members, officers and directors are elected by the membership at large. These leaders generally serve on a voluntary basis. Their top priorities are to act in the membership’s best interests and to encourage local economic development.
As independent agencies, credit unions are not beholden to any outside organization. Nevertheless, oversight is provided by state regulators – in Texas, the Credit Union Department – as well as the National Credit Union Administration. These agencies ensure that credit unions remain both stable and accountable.
Credit union funds are federally insured
Like the Federal Deposit Insurance Corporation (FDIC) that insures bank deposits, the National Credit Union Share Insurance Fund (NCUSIF) protects credit union deposits up to $250,000 per individual depositor. The U.S. government backs this insurance, and their coverage applies to regular share accounts, share draft accounts, education accounts, trusts and retirement accounts. According to the NCUA, “no member of a federally insured credit union has ever lost one penny of insured savings,” a reassuring note in times of economic uncertainty.
How to join a credit union
In keeping with their community roots, some credit unions have traditionally restricted membership to residents of a certain geographical area or to employees in certain industries. However, at the vast majority of credit unions in operation today, membership eligibility has been extended to the general public. For example, City Credit Union may be headquartered in East Dallas, but the institution serves Members across North Texas, from Cooke to Kaufman County. For 75 years and counting, City Credit Union has been making a difference, one Member at a time. If you’re ready to start enjoying the many benefits that come with joining the City Credit Union community, you can check your eligibility and begin the application process online here.