How Military Credit Unions Work

We're Not Banks! How Banks and Credit Unions Differ

Before we dive into military credit unions, let's review what credit unions and banks have in common: services. At both types of institutions, you can open checking or savings accounts, get a credit card, invest money, take out a mortgage or apply for a loan.

Move away from services however, and differences arise. Most strikingly, banks and credit union are organized and governed differently. Credit unions are cooperatives, while banks are corporations. To join a credit union, customers pay a small fee, buying them a place in the union. As members, they're responsible for, among other things, electing the board of directors, the credit union's decision-making body. The directors also must be members. In comparison, bank customers don't own part of the bank unless they purchase stock. In addition, stockholders and bank managers elect bank directors, and directors can be anyone considered qualified for the job [source: BOA].

Here's another key difference: Credit unions are not-for-profit organizations. When credit unions earn money on their investments, they must return the profit to members. In addition, as not-for-profit organizations, they don't pay state and federal taxes. Banks, however, are for-profit. They can keep that money or decide to distribute it among shareholders. They also pay taxes, resulting in higher operating costs. Those costs include directors' salaries. If you sit on the board of directors at a credit union, it's an unpaid gig.

Maybe because of these differences, credit unions offer slightly better rates to you, the customer. At credit unions, savings accounts earn more interest, while loans and credit card balances accrue less interest than they do at banks [source: NCUA].

On the other hand, banks admit a broader group of customers. As columnist Sandra Block jokingly writes in USA Today, at most banks, "unless you're armed, a bank employee will happily help you open an account." At credit unions, members must have a common bond. The bond can be based on, for example:

  • Where you live
  • Where you work
  • Where you study
  • Which professional or volunteer organizations you belong to

You can also qualify through family ties to a credit union member. At military credit unions, members must be affiliated with the military. We'll talk later about what "affiliated" means.

Banks and credit unions also follow different rules, being regulated and insured by different agencies. The Federal Deposit Insurance Corporation (FDIC) oversees banks, while the National Credit Union Administration (NCUA) regulates credit unions. The insurance amount and the types of accounts insured are the same for both institutions [sources: FDIC, NCUA].

Next, find out if you can join a military credit union.