Mem­bers profit from credit union prac­tices

Boston Herald - - THE EDGE • TV - By JAMIE YOUNG GOBANK­INGRATES.COM

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.

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