How Credit Unions Began and Why They Still Matter Today

What’s the difference between a bank and a credit union? Why do we have these two types of financial institution in the first place? Read on for a quick rundown of the history and purpose of credit unions, including and why having access to credit unions still matters today.  

The First Credit Unions  

According to the World Council of Credit Unions, the first credit unions were established in Germany around the 1850s. These credit unions were created and used by people who weren’t getting their financial needs met by traditional banks, often due to having less material wealth or needing relief from loan sharks. With credit unions, people could pool their savings and lend to fellow members, in a more cooperative model.  

The first U.S. credit union is said to have opened in 1909 in Manchester, New Hampshire, closely followed by the Massachusetts Credit Union Act which paved the way for more such institutions. At least one person involved in these credit union expansion efforts, Mr. Edward A. Filene, was inspired to promote the credit union model after having witnessed successful agricultural cooperatives in India. 

A Growing Movement 

In the 1920s and 30s, more states enacted their own credit union laws and federal governance soon emerged as well. The mid-20th century brought more growth in credit unions and members, and by the end of 1960 an estimated six billion people in the U.S. belonged to a credit union. Ten years later, the National Credit Union Administration (NCUA) was created by congress—and in fact, the NCUA is still responsible for overseeing federal credit unions, insuring deposits and protecting credit union members today.  

There are now over four thousand credit unions in the U.S., with well over one hundred million members and assets totaling more than two trillion dollars. The story of credit unions is a story of growth. But why do people in need of financial services continue to choose credit unions? How has the member-owned governance structure of credit unions managed to bring in in more and more individuals and businesses throughout the years?  

Why Credit Unions Still Matter Today 

The popularity of credit unions across three centuries comes down to a few key factors. To start, many members appreciate that credit unions are not-for-profit financial cooperatives which means they exist to serve their members—rather than to maximize corporate profits. This may be why credit union members may enjoy a higher level of personal service.  

Credit unions offer all the services available at a traditional bank, including savings accounts, mortgages, investment support and so on. However, when compared to commercial banks, credit unions typically offer lower fees and loan rates, along with higher returns on savings interest.  

Many people also appreciate the operational structure of a credit union. Because credit unions are democratically operated—with a volunteer board of directors made up of members—members get a much larger say in what the institution stands for and how it is run.   

Where to Learn More 

Curious to know more about the unique features of a credit union? Check out this informational rundown from Harvard FCU and be sure to browse the Harvard FCU blog, where you’ll find additional information about building a positive relationship with your financial institution, joining a credit union, and how credit unions can support local communities.