How Are Credit Unions Not-for-Profit?
One of the defining features that set federal credit unions like OnPath Federal Credit Union apart from banks is their not-for-profit business model. Credit unions aren’t about making money for themselves – they are solely focused on the financial health of their member owners.
Credit unions, like all successful financial institutions, still make money. The difference is those profits go toward things like better interest rates on savings accounts, lower rates on loans and decreased fees for everyday banking products.
That means some of the interest you pay on your auto loan or mortgage through OnPath Federal Credit Union is getting paid back to you (in a sense) if you are also using an OnPath savings account, share certificate, another personal loan or any of our other financial services.
What’s the Difference Between a For-Profit Business and a Not-for-Profit Business?
People sometimes confuse “non-profit” and “not-for-profit” since they sound like they mean similar things. The “non-profit” designation is specifically intended for organizations that “serve the public good” rather than traditional businesses. These include things like foundations, hospitals, universities and charities. They are exempt from taxes.
One can argue federal credit unions do serve the public good, as they provide competitively priced financial services to members of their community, but they don’t technically possess all the non-profit characteristics since they are still businesses.
A not-for-profit business like OnPath FCU doesn’t earn a profit for the owners or investors. Instead, all money raised through the business’s operations goes back into the business rather than an investor’s pocket. This means interest paid to OnPath and various fees charged for financial products are used to pay staff, cover overhead costs, fund loans and lower the cost of the services we provide.
This is markedly different from a publicly traded for-profit banking institution. Profits from banks can go to shareholders and investors in the form of dividends. They are not solely reinvested into the bank for the benefit of their customers.
Do Credit Unions Get Tax Exempt Status?
Although FCUs are not technically “non-profits” in the charitable sense, they still receive tax exempt status if they’re insured and supervised by the National Credit Union Association (NCUA). As an NCUA-insured credit union, OnPath FCU is tax exempt under what’s known as 501(c)(1) of the tax code. This is also good news for members, as it maximizes the dollars that are reinvested into the business for their benefit.
Why Are There Credit Unions?
Credit unions aren’t exactly banks in the traditional sense; they’re “financial cooperatives” established by a group of people who share certain things in common. For example, some businesses have their own internal credit union for workers and their families. Many credit unions, including OnPath, are made up of people who live or work in a specific geographic area.
Credit unions, which first began appearing in mid-19th century Europe, are essentially ways for a specific group of people to pool their resources for the betterment of members.
Consider someone who wants to buy a house but doesn’t have the cash on hand to pay for it out of pocket (which is most people). That person’s neighbors could pool their resources to provide the homebuyer a loan. All the people who lend the homebuyer money get paid a little bit of interest back and assume very little risk individually (in the case of modern FCUs in the United States, all deposits are insured up to $250,000 so there’s virtually no risk).
These types of financial cooperatives were a way for members of communities to get funding for buying homes, cars or opening businesses. They also gave members of the community a chance to earn some interest on their savings since those deposits are being loaned out. It’s a win-win system.
Are You Eligible for Membership in Our Not-For-Profit Federal Credit Union?
If you live or work in the greater New Orleans area, you are eligible for membership with OnPath Federal Credit Union. You can visit our membership page to learn more about the eligibility specifics and the process of applying. We currently meet all the banking needs of more than 63,000 members, all of whom enjoy the benefits of banking with a not-for-profit institution like ours.
Call us at (504) 733-7274 for more information.