3

Since a credit union's customer own shares/stocks, then what is really happening when a credit union makes a car or home loan to a new customer? Is it shorting selling stocks at an interest rate? What if the stock price goes up or down?

Also, what is the difference in having your money in a credit union vs regular bank? interest as well as dividends are considered income thus both ways you'll get a 1099 right?

1 Answer 1

4

A credit Union makes loans exactly the same ways a bank does. A portion of the money deposited in checking, savings, money market, Certificate of Deposit, or IRA is then used to make loans for cars, boats, school, mortgages, 2nd mortgages, lines of credit...

The government dictates the percentage of each type of deposit that must be held in reserve for non-loan transactions.

The Credit Union members are the share holders of the "company". There are no investors in the "company" because the goal is not to make money. In general the entire package is better because there is no pressure to increase profits. Fees are generally lower because they are there to discourage bad behavior, not as a way to make a profit off of the bad behavior.

Dividends/interest are treated the same way as bank interest. The IRS forms are the same, and it is reported the same way.

Some of bizarre rules they have to follow: maximum number of transactions between accounts, membership rules, are there because banks want to make it harder to be a member of a credit union.

1
  • Last paragraph is so true, banks absolutely hate credit unions. I'd never go back to a bank.
    – Andy
    Commented Dec 30, 2014 at 23:54

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .