Why Credit Unions are Not-for-Profit

Credit unions are not-for-profit and designed to benefit their account holders first. Traditional banks are for-profit, so they’re incentivized to generate revenue for the company and shareholders. Profits made by credit unions are returned back to account holders in the form of reduced or no fees, higher savings rates, and lower loan rates.

What Does Not-for-Profit Mean?

Not-for-profit organizations like credit unions do not earn profits for their owners, directors. shareholders or officers. All of the money earned by, or donated to, a not-for-profit organization is used in the best interest of its account holders (owners) such as providing higher savings rates and lower loan rates, as well as for pursuing the organization’s objectives and keeping it operating. 

Benefits of Credit Union Not-For-Profit Status

What do credit unions do with their profits if they’re not-for-profit organizations? 

Credit unions believe there are two main ways profits should be treated: 

  1. Profits should be reinvested in the credit union and the community. That can include improving brand operations by hiring more staff, updating software programs or making repairs and improvements to their buildings. The second part of this comes in the form of supporting the community by volunteering time and funds.
  2. Profits should allow for lower borrowing costs. The idea is that if a credit union has extra cash, it can make interest rates on its loans lower and interest paid on deposits higher. 

Credit unions, just like banks, invest a portion of their money and lend out the rest. Lending increases total assets, takes cash off the organization’s hand, and creates income from interest charged. The generated income keeps getting continually reinvested to better serve account holders, provide lower rates and higher returns,  improve operations and services, and strengthen  the communities that it serves.