Credit unions are private financial institutions that operate almost like banks but are created, owned, and run by their members. To become part of a credit union, one must share a common bond with the rest of the members based on factors such as employer, location, or source of income.
Backed by many benefits to its members, learning how credit unions make money from this blog is essential.
1. Offering Loans
Interest on loans is the leading source of income for credit unions. These unions offer different loans to members, including business loans, mortgages, personal loans, and auto loans. They then charge them a stipulated fee as interest on the loans, which becomes their profits and source of income.
While loan interests from credit unions are usually lower than those from banks, the profits yielded are still enough to cater to their operations.
2. Membership and Other Fees
Credit unions require interested members to pay a stipulated fee, usually the membership fee. As the term suggests, this fee is meant to prove one’s membership to the union. They may also require registered members to maintain a given amount as a minimum balance, often non-withdrawable and non-refundable.
Another fee that may be charged to the members besides the membership fee includes penalties for violating the rules and regulations. Credit unions use these fees as a source of income.
3. Credit Union Partnerships
Credit unions may partner with other financial institutions, such as banks and fellow unions, to offer services to members. Through these partnerships, credit unions often earn commissions whenever their products sell.
They can earn from referrals made through the associations, enhancing their investment portfolio. Credit union partnerships have proven beneficial if formed under reasonable rules and regulations and among well-performing institutions.
4. Advisory Services
Credit unions may also make money by offering advisory services to their members, especially the newbie ones. These services can touch on financial subjects such as retirement planning, homeownership, bet management, insurance, investment portfolio, financial planning, family businesses, and succession.
Advisory services among credit union members seek to empower them and enhance their financial health. The services may also differ from one union to another, requiring members to inquire about what services their preferred credit union offers.
5. ATM Usage Fees
Nearly every credit union issues its members with an Automatic Teller Machine (ATM) card to facilitate their withdrawal and deposit of money. Some charges are incurred whenever a member uses the card within or outside the credit union’s network.
These charges transform into income for credit unions since there’s a large number of people using the cards. ATM usage outside your credit union’s network may be relatively costlier than its counterparts, translating into more income.
6. Transactions Charges
Credit union members can undertake a transaction with or without an ATM. Nearly all transactions undertaken are subject to certain charges except the petty ones that the credit union may have exempted.
These charges apply when a member sends or receives money, pays for products and services, or withdraws money from ATMs or mobile applications. Credit unions pool the fees charged on various customers’ transactions to generate a reasonable income.
7. Technological Developments
In the era when technology has become a crucial part of human life, credit unions haven’t been left behind in innovations and developments. These unions invest in various technological developments to benefit their members and beyond, earning themselves significant income over time.
Some key technologies include developing unique banking systems, expanding ATM networks, developing online and mobile banking apps, enhancing security measures, and innovating digital payment solutions for their members.
Others include automated customer support services and cryptocurrency. Every technological advancement credit unions undertake seeks to attract higher income directly or indirectly.
8. Insurance Services
In conjunction with various insurance providers, credit unions offer insurance services to their customers and earn an income out of it. Such partnership allows credit unions to facilitate insurance services without becoming insurance companies themselves.
Insurance companies can refer various customers to purchase policies through a credit union. Credit unions’ main types of insurance policies include life, home, auto, health, travel, and business insurance, among others.
9. Account Holder Fees
Credit unions charge every account holder a stipulated fee, usually called account holder fees. While the costs differ from one credit union to another, they are much lower than those banks offer.
Other factors determining the amount of account holder fees a credit union charges include its policies, account balance, and account type. Besides the ATM and transaction fees, other account holder fees charged by credit unions include inactivity, tangible statements, overdraft, and monthly account maintenance charges.
Wrapping Up
Thanks to their affordability, credit unions make an excellent solution for your financial needs. Thankfully, you’ve learned how these institutions earn money if you are interested in or wish to become part of them. When choosing which credit union to invest in, you should consider your financial goals, location, preferences, services offered, and type.
