“You are a customer at a bank, but you're a member of a credit union,” says Filene Credit Union Fellow and University of Pennsylvania Professor Lisa Servon. “Banks are looking to serve you with products that you need, but also to maximize their profit. Credit unions…see you as having a stake in what they are doing and they’re more focused on your satisfaction than on making money.”
Even though they are not-for-profit, credit unions – just like charities – do have to cover the cost of doing business. Charities commonly rely on donations (via memberships, fundraising events, and the like), as well as grants. For credit unions, profits are generated via fees charged for services and returns on any investments they make.
Essentially, the fact that credit unions are not-for-profit organizations simply means that they are not looking to make a profit off of you, the customer, Servon says. “But that doesn't mean they don't charge any fees, or that there's nothing to sell to pay staff, keep the lights on, and do all of the administrative work that's necessary to run an organization.”
The Federal Credit Union Act outlines the basic structure governing credit unions. According to Joe Adamoli, spokesperson for the National Credit Union Administration, credit unions typically have the following key characteristics:
As you may know, being a not-for-profit comes with certain tax advantages. That holds true for charities as well as credit unions. They get some major tax breaks that can help them operate more efficiently. Credit unions don’t pay corporate income taxes, or most other federal taxes, thanks to the National Credit Union Administration exemption granted by the IRS. That said, they do still owe some money to Uncle Sam, like payroll taxes and local property taxes. “Credit unions merit a tax exemption as they have certain features that clearly distinguish them from other financial institutions and have not deviated from their original purpose,” explains Adamoli. “For example, credit unions still have a common bond among members and serve as a source of credit for low- and moderate-income people.”
Given their tax-exempt status, credit unions are able to offer a host of benefits to members. “Credit unions operate to promote the well-being of their members,” notes Adamoli. “Credit union earnings are returned to members in the form of reduced fees, higher savings rates, and lower loan rates.”
When you think of a not-for-profit charity, you might think of those that work to make a difference in their community. The same is true for credit unions. “In my experience of working with credit unions, I think of credit unions as being more focused on members, but in ways that go beyond just the products and the cost of the product,” says Servon.
For example, Servon says she regularly sees credit unions offering programs that benefit their members, and the community at large, like financial education programs. “I think that kind of community focus, because credit unions often have a very specific member base, whether it's by region or they work with a particular industry or company, they also tend to get to know that group better and then that, combined with their mission, makes them more member-focused.”
Credit unions, much like charitable organizations, are “focused on a mission,” says Servon. “Non-profits tend to have a purpose that’s different from making a profit,” she says. The same goes for credit unions. “The idea is that any money that gets made gets put back into the organization, so rather than being extracted either from customers or from the business, it gets invested back into it.”