Are Credit Unions Non-Profit Organizations?

Like banks, credit unions offer checking and savings accounts, credit and debit cards and mortgage, personal and automotive loans. Although credit unions perform many of the functions associated with banks, their structure differs significantly from that of banking institutions.

Profit Status

Unlike banks, which are for-profit businesses, credit unions are not-for-profit, member-owned organizations. This structure differs from Internal Revenue Service 501(c)(3) tax-exempt status in that not-for-profit institutions -- including credit unions -- do pay state, local, property and payroll taxes, unlike nonprofits, which the IRS excludes from all taxation. However, not-for-profit organizations such as credit unions are exempt from federal taxes, according to the Credit Union National Association, a professional organization for credit unions..

Credit Unions vs. Banks -- The Differences

Because of their not-for-profit statuses, credit unions' primary goal is to provide services and financial education for their members, rather than deliver a profit for shareholders. Unlike for-profit banks, credit unions do not issue stock or pay dividends. Credit unions also differ from banks in that volunteers serve on these organizations' Board of Directors, not paid employees. Additionally, credit unions invest their "profits," or positive income, back into their organizations, rather than using them to pay shareholders or dividends.

Benefits of Credit Unions

Credit unions' not-for-profit status means they offer several advantages to consumers that banks cannot. For instance, credit unions usually offer savings and checking accounts with lower fees than banks. Additionally, credit unions offer lower interest rates than banks on lending opportunities, including mortgages and automobile loans. Typically, credit unions also offer higher interest on financial deposits than do banks. Another advantage of credit unions is that they allow members to vote on policy changes and elect directors.

Disadvantages of Credit Unions

The major drawback to credit unions is that they are not open to the public: Federal law mandates them to restrict membership to certain groups. People generally gain access to credit unions through their employers, churches, community groups, schools or local cities or towns. Additionally, because of their small, not-for-profit structures, credit unions lack the large network of branches and ATMs that many banks feature. Additionally, a few credit unions do not carry deposit insurance, according to an article from The Motley Fool, a consumer financial website.