Credit unions in the United States

Where is the real reason credit unions are so popular? No, it's not consumers turning away from banks - it's just that banks don't feel they need to spend their time and resources on not-so-wealthy Americans. They're not ideal customers - not enough money, not doing enough deals. And in return, they get a lot of extra fees, which the banks tried to compensate for the lost profits.

You should pay for everything

Separately, we should talk about rates for those who don't have extra money to save. No money to maintain a minimum account balance? Penalty. Didn't make an extra statement of account (and it's also paid) and as a result you spent more than you had? Again the penalty. The penalty for an overdraft is greater than the fee for using it.

Plus the inconvenience

Again, not every American employer transfers his or her paycheck to an employee-designated bank account. That means you have to deposit the money into the account yourself to maintain your balance. The list of reasons why having a bank account is financially disadvantageous could go on and on. Oh yes, and also the unreliability of customers, indicated by returned (unpaid checks) or overdrafts as an inability to calculate their finances. Entering information about such clients in the unified database, banks just get an opportunity to screen out in advance those who promise them certain risks. This means that such clients will not be able to get (open) either deposits or loans. And microcredit is very expensive. What to do? Right, go to the place where they will be happy - in the credit union.

Social goals

Continuing Education. Credit unions actively work to educate their members, managers and employees, as well as the general public, according to their economic, social and democratic cooperative principles. Promoting savings and the wise use of credit, as well as educating members about their rights, responsibilities and opportunities, are key to the dual social and economic mission of credit unions.

Cooperative cooperatives. In keeping with their philosophy, credit unions actively cooperate among themselves and with sister cooperatives in local, national and international organizations for the benefit of their members. Social responsibility. Continuing in the tradition of the pioneers of the cooperative movement, credit unions have a vision of human and social development. Their vision of social justice extends to both individual members and their environment. The idea of a credit union is to involve everyone who needs the services of a credit union and is able to take advantage of them. Anyone is a potential member of a credit union. Decisions must be made with the fullest possible consideration of the interests of the broadest possible stratum of people in which credit union members live and work.

Credit unions are most developed in the United States, England, and Canada, and are designed mainly to serve individuals united by professional and religious characteristics. They are organized, as a rule, on cooperative principles. Their passive operations are formed from share fees in the form of purchases of special shares, as well as loans from banks. The unions pay interest on the share fees. The active operations are formed mainly by short-term loans for the purchase of a car, home repairs, etc. These loans constitute about 90% of all assets, the remaining part is formed by investing in various securities, both private and public. Credit unions mainly specialize in serving the poorer strata of the population. A large number of people in need of financial assistance caused a fairly rapid growth in the number of credit unions and a significant expansion of their operations. In recent years this form of credit and financial institutions has also been developing in Japan, Western Europe and Southeast Asia.

In connection with increased competition in the market of loan capital credit unions in the U.S. have undergone certain changes. First of all, their passive and active operations have undergone some evolution.

This is due to the fact that for a long time they enjoyed certain benefits and as non-profit institutions were exempt from federal taxes. In addition, they paid a dividend of 7% on their shares, while commercial banks paid 5.25% on deposits, and savings and loan associations paid 5.5%. But after 1982, when the process of deregulation began, the situation changed and credit unions were forced to diversify their activities. They began to issue credit cards, offer brokerage services, and acquire automated teller machines. In addition, they gained the right to grant loans secured by real estate, although it was difficult for them to do so due to the lack of sufficient funds.

The specificity of credit income is that credit union management has the right to find out where the funds for repayment of loans are coming from. Moreover, if a credit union is organized by employers or unions, they can deduct from employees' wages to pay back loans.

Although credit unions are more modest than other nonbank institutions, they cover 3% of all personal savings' in the United States, raise up to $4 billion in cash, and over 53 million people use their services. In the late 1980s they had 2% of all assets of credit and financial institutions, whereas in 1955 they owned only 0.5% and in 1965 1%.

U.S. banking system

The United States has a three-tiered banking system.

The first level is the Federal Reserve System (Fed), which includes a board of governors, 12 regional federal banks, member banks, and the Federal Open Market Committee.

The second level is represented by commercial banks, savings and loan associations and mutual savings banks, non-bank credit institutions, and financial companies.

The third level is formed by credit unions and mutual credit societies.

The FRS is a decentralized structure with a diversified system of supervising bodies, which are responsible for implementing monetary policy, stability of financial markets development, and stability of the country's banking system.

U.S. commercial banks carry out various operations: from traditional lending, which accounts for more than 50 percent of banks' assets, to various investment operations. The main purpose of all savings and loan associations and mutual savings banks is to make home mortgages.

How credit unions in the U.S. differ from banks?

The difference between a bank and a credit union is that the latter are considered nonprofits because they operate to serve their members, while banks generate profits for shareholders. Unlike a charity or other nonprofit organization, credit unions do not rely on donations. Like financial institutions, credit unions create profits from an economic standpoint in order to keep operating and generate additional profits for their members.

The basic idea is that monetary profits are passed on to union members in the form of higher fees on their savings and deposits - and lower interest rates on their loans when they borrow money. Credit unions use their super profits to offer members more affordable loan rates, a higher interest rate on savings and lower fees.

They also invest their super profits in creating new products and financial services, such as online banking and bill payment software or other benefits for members. Of course, they must maintain liquidity and a weighted reserve in order to stay in business. In this regard, credit unions are not much different than any other for-profit business, except that in a cooperative, customers also own the bank.

Because of membership restrictions, to become a member of a credit union, you must either be part of a particular group - such as schools, churches, or communities - or be affiliated with someone in the group. If you are able to qualify for credit union membership through your job, family, profession, or community, it is worth it because there are great benefits to being a credit union member.

Because credit unions are not involved in business and do not generate profits for shareholders, they are often able to provide better interest rates on loans and other investment services.

Explanation of federal credit unions

There is a wide variety of federal credit unions with different membership requirements. Federal credit unions offer comparable services to national and state banks. However, federal credit unions are cooperatives that are also known as mutual companies.

A credit union is a type of financial cooperative that provides traditional banking services. Ranging in size from small, volunteer-only credit unions to large businesses with thousands of members nationwide, credit unions can be created by large corporations, organizations, and other entities for their employees and members. Credit organizations are created, owned, and operated by their members. Thus, they are not-for-profit enterprises enjoying tax-exempt status.

Federal credit unions must be registered with the National Credit Union Association, or NCUA, to operate in the United States. It includes both large and small credit unions, including about 80 percent of the top 100 credit unions. Its activities include representing, informing, educating and assisting its members on industry issues. Headquartered in Arlington, Virginia, one of its primary goals is to influence laws and regulations affecting federal credit unions.

Mutual Company Structure

Federal credit unions are one of the leading categories of mutual companies in the United States. Many insurance companies were structured as mutual companies, but the demutualization movement of the 1990s caused a migration out of this structure.

Mutual companies are private cooperative companies owned by their members. Membership eligibility is usually based on various membership organizations, such as teachers' unions, firefighters' unions, federal employee unions, and others. Many credit unions have broader eligibility requirements, which may include individuals from various places or other broad categories.

As a cooperative, joint member companies of credit unions own shares of stock. The shares are distributed on a deposit basis. Consequently, the typical minimum amount a borrower must have in order to open a deposit account is equal to a share in the company. Members must maintain a base level of deposits at the same time as share ownership requirements.

What makes credit unions even more attractive is the fact that deposits can be protected by the U.S. Treasury similar to FDIC insurance. To qualify for FDIC insurance, credit unions must be either federally established or established by a state credit union that has elected to participate in the National Credit Union Share Insurance Fund (NCUSIF).

Products offered

Credit unions offer the same types of products as traditional banks. Credit unions often offer more customized product offerings based on their members' interests. Standard products include current accounts, savings accounts, money market accounts and loans. Because these institutions are largely owned by the people who invest in them, credit union members often enjoy higher interest rates on their savings accounts and lower borrowing costs than customers at traditional banks.

Credit unions also usually offer educational classes for their members. Popular seminar topics often include information about home buying and personal finance.