How Credit Unions Work

Membership in Credit Unions

Many credit unions offer free checking services -- just one of the membership perks.
Many credit unions offer free checking services -- just one of the membership perks.
©iStockphoto/Shannon Long

According to the Federal Credit Union Act, anyone can apply to join a credit union if he or she shares a common bond of employer, educational institution, branch of the military or government, church or community. Over the years, the growth of the credit union movement has resulted in nearly everyone being eligible for membership through some connection.

There are several ways to find out if you qualify for membership in a credit union:

  • Ask your human resources representative at work. Your employer may sponsor or have access to a credit union.
  • Ask family members (both immediate and extended) if their employers sponsor a credit union. Many credit unions allow family members, even cousins, to become members.
  • Ask friends and neighbors if they've heard of any community credit unions, either for your local neighborhood, county or city.
  • Call your state credit union league or use the online search tools provided by CUNA.

To become a member of a credit union, you need to fill out an application, many of which are available online. The first step on all credit union applications is to prove your eligibility, so be ready to provide the name of a relative, employer or organization through which you're affiliated. You'll then fill out some standard personal information questions about where you live and work and how much you get paid. After that, you can choose which financial services you want.

As we've mentioned, credit unions offer many of the same financial services as a bank:

  • Checking accounts and ATM cards
  • Savings, money market and IRA accounts
  • Credit cards
  • Secured or unsecured personal loans
  • Mortgages and home equity loans
  • Auto and recreational vehicle loans
  • Travelers cheques, money orders, certified checks and currency exchange

For many people, the main advantage of credit unions is that they charge lower interest rates for credit. The average credit union credit card charges 12.15% interest annually compared with 15.08% for the average bank credit card [source: MSN]. Plus, most credit unions charge no annual fee for credit cards and offer free checking accounts. Another advantage of credit unions is that they require very little money to open an account.

One disadvantage of smaller credit unions is that they may have fewer branch offices and less access to ATMs. Another disadvantage of smaller credit unions is that they may not offer as many services as banks.

If you're looking to join a credit union or learn more about credit, debt and personal finances, visit the links on the next page.