Members profit from credit union practices

Although operated cooperatively as not-for-profits, credit unions should not be confused with nonprofit charities. Because one thing’s for sure: Credit unions make money.

As financial institutions, credit unions generate what’s considered a profit in economic terms — which is needed to create a surplus in order to continue to operate and generate further profit for their members.

Credit unions do make money in a way that is similar to banks, such as from fees, interest rates and other funds paid by customers.

The difference between a bank and a credit union is that credit unions are considered not-for-profit because they operate to serve their members, whereas banks generate profits for stockholders.

Unlike a charity or other nonprofit organization, credit unions don’t rely on donations.

Credit unions use their excess earnings to offer members more affordable rates on loans, a higher interest rate on savings and lower fees.

They also put their sur- plus into creating new products and financial services, such as online banking and bill payment software or other benefits for the constituent members.

Of course, they must maintain liquidity and a prudent reserve in order to stay in business. In this re- spect, credit unions aren’t markedly different from any other commercial ven- ture, except that in a cooperative, the customers are also the bank’s owners.