About Credit Unions

Frequently Asked Questions About Credit Unions:

What is a Credit Union?

A credit union is a not-for-profit cooperative financial institution. It is owned and controlled by all of the people who use its services. These people are called "members," not customers. Members of credit unions normally share something in common, such as where they work, live, or go to church. This is known as a common field of membership. Credit unions exist to provide a safe, convenient place for members to save money and to get loans at reasonable rates. Like all cooperatives, they are based on the concept of "people helping people." Credit unions are closely regulated, just like other financial institutions. The National Credit Union Share Insurance Fund (NCUSIF), administered by an agency of the federal government, insures members' deposits up to $250,000, just as the FDIC does for customers of commercial banks.

How are Credit Unions Different from Banks?

Credit unions are not-for-profit cooperatives, owned and run by their members. Earnings are returned to members in the form of higher dividends on savings, lower fees, lower rates on loans, and expanded services and products for the members. Banks are for-profit corporations, with profits returned to investors and stockholders. Credit unions' directors are volunteers elected by their fellow members. Each member, regardless of how much he or she has on deposit, has an equal voice in the election of a credit union's board of directors. Bank directors are paid to represent the stockholders' interests, which are not necessarily the same as the depositors' interests. Credit unions make loans only to members. This ensures that capital flows back into the communities of which the credit union is part. Banks lend to many outside borrowers, including foreign countries. Credit union membership eligibility is defined by a common bond that members have with one another, either through their occupation, place of work or residence, or membership in a religious group, union or other association. Banks are allowed to serve anyone, anywhere. Banks complain that they lack a "level playing field" because of credit unions' exemption from corporate income tax. This exemption exists because of the fundamental differences between credit unions and banks. The only way for banks to achieve a "level playing field" is to renounce all profit motives, shift ownership to their depositors, and apply for a credit union charter.

How do Credit Unions Compare to Banks ?

At a credit union, you're a member ... not a number. You'll experience personal service and often earn higher returns on your savings and pay lower rates for loans. A survey recently conducted by the Gallup Organization showed, once again, that credit unions scored highest in consumer satisfaction. For ten straight years, credit unions have beaten banks, thrifts and other financial service providers. The survey indicated that 77% of credit union members are "very satisfied" with the service quality they receive at their credit union, compared with just 59% of bank and savings & loans customers. With that in mind, it was no surprise the survey also showed 62% of bank customers said they trust in credit unions as much or more than their own bank!

FIRST: It is a democratic financial institution

As a member of a credit union, you have a say in how your credit union is run. Every member of a credit union has one vote no matter how many shares you have. You can use that vote by participating in annual meetings, electing Board of Directors and serving as a volunteer. Unlike banks and savings & loans, you are actually a part owner. Banks and savings & loans have to earn a profit for their stockholders. These stockholders are often small groups of people who want a substantial return on their investment. This is not the case at a credit union. Since members own their credit union, any profit earned is returned to them in the form of high rates on saving, low rates on loans, or additional services. Credit union services are developed to improve the economic and social well-being of all members rather than to maximize profit. Therefore, credit unions actively cooperate with other credit unions at local, state, national, and international levels to help others better serve members in their respective communities.

SECOND: For easy access to services

Thanks to technology, it's not always necessary to go into a credit union office to transact your business. Through the use of phones, FAX, ATM machines, voice response systems, and the internet, it is now possible to open accounts, deposit and withdraw funds, transfer funds between accounts, and even apply for a loan without actually going into a credit union. So don't be discouraged if your credit union is not nearby. Consider using the credit union services which are most accessible to you.

THIRD: For Financial Safety

Financial safety is provided through the National Credit Union Share Insurance Fund (NCUSIF). The fund is administered and backed by an agency of the federal government which insures members' deposits up to $250,000, just as the FDIC does for customers of commercial banks.

What are the facts about Credit Union Taxes?

While credit unions are exempt from state and federal corporate income tax, it is important to note that they pay other state and local taxes, just like any business. For example, all credit unions that own property in New York State pay the real estate taxes that fund our local school systems. New York's state-chartered credit unions pay state and local sales taxes, and in certain cases, federally-chartered credit union pay sales taxes, also. Credit unions' employees pay the same taxes as any other employees. FICA, disability and unemployment taxes are all deducted from the paychecks of CU employees. Depositors at credit unions pay taxes on their interest ("dividends," in credit union terminology), just like depositors at banks. In the Tax Equalization Act of 1951, Congress reaffirmed why federal credit unions should continue to have the tax exemption they won in 1937. That Act said: "Credit unions without capital stock, organized for mutual purposes and without profit, will remain tax-exempt." To this day, ALL credit unions are still without capital stock holders, are still organized and operated for mutual purposes, and are still not-for-profit. So, the reasons for granting credit unions their tax-exemption are just as valid today as they were in 1937. Bankers fail to consider the two most important reasons why CUs are exempt from corporate income taxes:

  1. Our government recognizes that as not-for-profit cooperatives run by democratically-elected volunteer boards, CUs operate in their members' interest, rather than in the interest of stockholders or paid directors.
  2. Governments don't tax our profits because we have no profits: all revenues above operating expenses and mandated reserves are reinvested in the credit union in the form of lower rates on loans, higher yields on savings, low or no fees, and enhanced or expanded services. Credit unions offer and essential financial alternative for consumers, and have proven time and time again that they are truly "the consumer's choice."

If I still have some Questions, Can you help me?

We most certainly can and we're eager to do so! Please call 342-5300 or 341-7277 and ask to speak with someone about how to join Compass Federal Credit Union. That person will also answer any further questions you may have.