What is a credit union?
A credit union is a financial cooperative that offers public traditional banking services. It could range from a small one run by volunteers to huge ones that are well-established and have thousands of members. Credit unions can also be started by a large organization for their employees. These credit institutions are generally created and owned by the participants themselves. They are not-for-profit unions and have a tax-exempt status.
How does it work?
Since all the members are technically owners of the union, they follow a simple model. All the members pool in their money and are buying a sort of share in the union. With this, they would be able to provide demand deposit accounts, loans, and other financial help to each other within the cooperative. Any income made with this will be used to fund projects that align with the interests of the members and the community.
Becoming a member
In the beginning, getting a membership was difficult as access was limited to those who worked in the same industry or lived in the same neighbourhood. However, recently, credit unions have relaxed their entry requirements and now the general public can join and get a membership.
To join, you must first open an account with the cooperative. Once you do, you are part owner of the union and a member. In most cases, the voting significance does not depend on the money they have in their account. Every member’s vote counts equally.
Arizona Federal Credit Union
The Arizona Federal Credit Union was founded on October 23, 1936, by a group of employees of City of Phoenix. They pooled their money together and created the Phoenix City Employees Federal Credit Union. At the time of forming, they had less than 50 members and the average account balance was just $5. Over time, they expanded and today, they have over 125,000 member accounts across 12 branch locations. They have more than $1.3 billion in resources.
Arizona Federal helps its members with their financial requirements with professional staff, a wide range of financial services, and a comprehensive set of values. While they have managed to expand widely, their primary aim is still to help people. The union also works hard to offer financial education and has, over the years, consistently given back to its community.
Due to the cooperative structure of credit unions, any and all income is given back to the members in various forms, including no-fee services, low-interest lending, high yields on savings, and so on. The funds are also insured by the National Credit Union Administration (NCUA) up to a value of $250,000. NCUA is a United States Government agency.
Working and Philosophy
While Arizona Federal was initially formed as Phoenix City Employees Federal Credit Union, they merged with other local credit unions over the years. They also benefitted from the population boom in the Phoenix area. While the company has had its share of ups and downs, they have managed to always deal with it. In 2009, they accosted a lot of $64 million in the last quarter of 2008 and a total loss of $115 million for the same year. This was known to be the second largest annual loss ever for any credit union. The cooperative was forced to shut down 8 of its 12 branches.
Arizona Federal, in 2012, stated their net income as $44 million for the year which got the union its “well capitalized” status with the NCUA or the National Credit Union Administration. More recently, Arizona Federal Credit Union talked about their three-year partnership with Phoenix Rising FC. In 2017, this partnership made the union the soccer club’s exclusive financial partner.
The Arizona Federal Credit Union in Phoenix actively works to give back to its community by being engaged in philanthropic and financial education events. They work with the government and run workshops to provide financial education to the government employees.
Pros and Cons of Credit Unions
Pros: Credit union don’t have to pay tax on earnings. The unions only have to earn enough to run daily operations. Due to this, they can work with narrower operating margins compared to traditional banks. This permits the unions to offer higher interests and helps the member save money on loans. They can use their additional earnings to offer their members no-fee services.
Cons: With less brick-and-mortar infrastructure and more online presence, it can be troublesome for those who are not very tech-savvy. Their websites, online tech, and security elements are not as sophisticated as banks as they don’t necessarily have the budget for it. Credit unions offer fewer banking options and financial services and are less flexible than banks. Their working hours are also limited, but larger unions tend to have a 24-hour customer service hotline.