Credit Where It’s Due

When Jeremy Treadwell needed a car loan, the recent college graduate turned to the financial institution where he’d been banking for nearly seven years. “But they turned me down,” says the 23-year-old, “because I didn’t have any credit history.” Treadwell, who lives in Peoria, Illinois, noticed signs around town for Citizens Equity First Credit Union. Says Treadwell: “I got a great rate. But then I noticed their other services. Now I do almost all my banking there: checking, savings, credit card, and, of course, my car loan.”

Treadwell’s experience isn’t unusual. Although credit unions have been around at least since the 1930s, when President Franklin D. Roosevelt signed them into law, many people stumble onto them because of their attractive loan rates or higher savings interest rates.

So, what exactly what are credit unions, and how are they able to offer lower rates? Credit unions are cooperatively owned by the people who open accounts with them. Those people are called members, not customers. Some even distribute profits to members as an annual bonus or dividend. Unlike many banks, which are governed by paid boards of directors, credit unions are led by elect volunteer boards.

In general, credit unions serve a defined membership that has a common bond, usually an area of residence, business or type of work, place of worship, or affiliation with certain organizations. Despite these requirements, almost anyone can join a credit union. To find a credit union near you, go to

Credit unions are not-for-profit. With no obligation to generate profits for shareholders, credit unions look out for members’ interests and exist to help people save and invest more efficiently. These entities return profits to members by providing better savings rates and lower loan rates as well as charging fewer and lower fees. Because they are not-for-profit, credit unions are exempt from federal and most state taxes and can pass on this savings to members. They also provide a level of customer service usually not found at other financial institutions. But, according to senior financial analyst Greg McBride of, credit unions do not typically provide wealth management, brokerage, or mobile banking services.

Credit unions are similar to banks in that they offer a range of financial products and services, though smaller credit unions tend to offer fewer services. On average, credit unions charge lower loan and credit card interest rates and offer higher savings rates (see chart). Because credit unions often serve the inexperienced and underserved, their services tend to be more accessible to those looking to establish themselves.