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How Do Credit Unions Work?

Credit unions are full-service financial institutions that typically offer the same products as banks, but credit unions differ from banks in many ways:

  • A credit union is a member-owned financial institution and cooperative established to support specific geographical or industry groups.
  • A credit union is a not-for-profit organization that redistributes its revenue to benefit its members, the community and organization.
  • Credit unions are known to offer higher-interest rates for savings, lower-interest rates for loans and zero-to-low fees.
  • Funds deposited at a federally insured credit union are protected by the National Credit Union Share Insurance Fund for up to at least $250,000 per account owner
  • Credit unions personalize their customer service and build relationships with members.
  • The mission of credit unions includes community outreach and giving back.

Many people aren’t aware of all the perks that come with joining a credit union. A credit union is a financial institution offering many of the same financial products and services as banks; however, it is not a bank. Banks and credit unions are different and credit unions arguably provide better benefits. We’re here to explain those differences and benefits, as well as answer, “How does a credit union work?”

Is a Credit Union a Bank?

No. A credit union is a full-service financial institution that operates similarly to a bank because it offers financial products and services. The two, however, differ in many ways:

A credit union is a not-for-profit, member-owned organization and cooperative. Not-for-profit (different from nonprofit) means the goal of a credit union is not to make a profit for stockholders. Rather, the goal is to reinvest revenue into the organization to benefit members and give back to the community.

Banks are investor-owned, for-profit financial enterprises. Banks pay out large dividends to their shareholders; whereas credit unions pay out dividends to their members. While the goal of a credit union is to meet its members’ needs with the best terms and customer service, banks strive to earn profits for their investors.

Credit unions focus on their members and their financial well-being through affordable rates and zero-to-low fees, financial education and personalized, caring customer service. Keep reading to learn more about credit unions and why millions of people choose to become a member.

What is a Cooperative?

As a cooperative, credit unions operate as democratic, member-controlled and member-operated entities. Members get to vote for the organization’s board of directors who are volunteers. This democratic approach supports a credit union’s goal to serve in the best interest of its members and for the greater good of the community. For more information, visit the National Credit Union Foundation’s “The Cooperative Principles for Credit Unions” page.

Also, credit unions are typically local and support specific groups or communities that share a common bond, known as a field of membership. Desert Financial was originally founded for teachers, and more than 80 years later, is expanding its field of membership throughout most of Arizona. Membership is available to almost everyone in Arizona.1

Better Rates and Member Rewards

Since credit unions share their success with members, they tend to offer more favorable product offerings. These may include zero-to-low fees, lower interest rates for loans, higher interest rates for deposits and free checking. A credit union may also redistribute profits to reward loyal members in the form of cash bonuses, discounts and free perks.

Federally Insured

The NCUSIF insurance, operating through the National Credit Union Administration, covers up to at least $250,000 per individual depositor at a federally insured credit union. The NCUA states that “federally insured credit unions offer a safe place for credit union members to save money” and that members “have never lost a penny of insured savings.”2

Personalized Services and Exceptional Experiences

Credit unions carry a reputation for developing personal relationships with their members, so they can better meet their individual needs. As a local institution, credit unions care deeply about their community. That’s why they value personal engagement with their members. Credit unions want to help their community members achieve their goals, build their futures and live with financial stability.

Community Outreach

Many members enjoy being a part of an organization with a mission to do good within the community. Credit unions are passionate about donating to local charities and planning and participating in community service projects. Desert Financial gives back to the community by providing financial literacy workshops and financial assistance to local partners like the Phoenix Children’s Hospital and Valley of the Sun United Way. Desert Financial also makes a difference by performing Random Acts of Kindness and giving back to teachers.

Choosing between a bank or credit union depends on your needs and priorities; however, credit unions are starting to match the same services at banks — while still offering unique benefits that come with being a not-for-profit, member-owned and community-minded organization.

Desert Financial offers a wide range of financial products, along with in-person and online services. Since Desert Financial is a part of the CO-OP ATM Network, members have access to nearly 30,000 surcharge-free ATMs displaying the CO-OP logo, as well as over 45 branches.

It’s easy to become a member and open an account with a $25 minimum.3 You only have to meet ONE of these three eligibility requirements:

  1. Live, work, attend school, volunteer or worship in our membership coverage area, which includes all of Arizona (with the exception of Apache, Graham, Greenlee and Santa Cruz counties).
  2. Be an immediate family member of a current Desert Financial member.
  3. Be an employee of Desert Financial.

Businesses must be located in the state of Arizona in order to be eligible to join.

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1Credit Union eligibility requires members to live, work, attend school, volunteer, or worship in Arizona (except Apache, Graham, Greenlee and Santa Cruz counties), be an immediate relation of an existing Desert Financial member, or be an employee of Desert Financial.
3Primary account holder must meet Desert Financial’s membership eligibility and credit qualification requirements, including opening a Membership Savings account with a minimum balance of $25. Checking is free; however, fees incurred — such as a stop payment or NSF fee — may apply. For complete terms and conditions, refer to the published Statements of Terms, Conditions and Disclosures.

The material presented here is for educational purposes only and is not intended to be used as financial, investment, or legal advice.