The concept of credit unions originated in the United Kingdom. It was in 1844 that a group of weavers in Rochdale formed the Rochdale Society of Equitable Pioneers. It was formed to buy goods at wholesale prices and sell them to members at lower than the retail market price. The funds were raised by selling shares to members. The movement came to Canada in 1901 and it was a huge success. Attracted by the success in Canada, the first credit union in the United Staes was established in 1908.

Pierre Jay, the Massachusetts Banking Commissioner, and a Boston merchant by the name of Edward Filene were instrumental in passing the first state legislation in the United States in 1909 in the state of Massachusetts. Growth was slow, both for the legislation in other states and the Massachusetts Association. Only a very few states followed suit to pass laws on credit unions.

In 1921, Felene stepped up his efforts to get laws passed in other states and for the creation of more credit unions. He formed the Credit Union National Extension Bureau spending one million dollars from his own pocket. He hired the services of attorney Roy F. Bergengren to support his efforts for legislation. By 1925, 25 states passed specific laws and there were 419 credit unions with a total membership of 108,000. By 1935 the number grew to 3,372 with a membership of 641,800 and 35 states had laws allowing this type of operation.

In actual practice, CUs are an organized group of people that provide cheap financial service to their members. The members pool their resources. Unlike banks, the stress is on giving financial services to members rather that making a profit.

Most are governed by a voluntary board with the board members being local people. The banks have highly paid professionals on their board. They have to be paid a hefty sitting fee and traveling expenses. You can see how that amounts to a huge saving for these member based organizations.

The banks are motivated by profit which is disbursed among the stockholders. On the other hand, the intention of the credit unions is to provide cheap credit to members. These factors help them keep their operating costs very low. As there is no profit motive there is no need to show big surpluses in the balance sheet.

Compared to banks, the CUs have no intention of making huge profits to distribute among the stockholders. Since expenses are kept very low, it allows CUs to offer credit to their members at very low rates. They also keep their service fees for their members very low.

For the same reason credit unions are also able to offer better mortgage deals. That is also why they can pay much better returns on the savings of the members. The surplus funds available are distributed among the members as dividends. You’d be wise to join a credit union in your locality.

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