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Credit Union Q & A

Why are credit unions tax-exempt?

Credit unions do not pay income tax.

Here are just a few reasons:

  • Credit unions are not-for-profit, democratic, financial cooperatives owned by their members. They were created to provide financial services with member ownership and control. Those characteristics are the foundation of the tax exemption.
  • Early in the history of credit unions, the U.S. Attorney General declared state-chartered credit unions exempt from federal income taxes because they were "organized and operated for mutual purposes and without profits." In the 1930s, legislators passed a law to exempt federally chartered credit unions from federal income tax for the same reason. Today legislators continue to maintain that status because credit unions, while growing and changing to meet modern consumer needs, still operate in this unique way.
  • Credit unions' boards of directors serve as unpaid volunteers, elected by the members. Credit unions return all excess income to members in the form of higher deposit rates, lower loan rates and lower fees. Credit unions don't need to create profits to pay stockholders as do other types of financial institutions.
  • All taxpayers, whether members or not, benefit from the presence of credit unions in the marketplace. Credit union competition helps keep down the costs of financial services offered by all financial institutions.

  • What would be the effects of a tax on credit union earnings?

    • Credit unions, if taxed, would have to take the money from funds otherwise dedicated to reserves - the cushion protecting all members and the credit union from economic shifts. State and federal regulators require credit unions to maintain adequate capital and other reserves. As a credit union grows, it must continue to add to capital in order to keep the ratio of capital to assets in line with regulatory requirements. Credit unions cannot sell stock to raise capital like other types of financial institutions. The only way a credit union can add to capital is from earnings set aside for this purpose. So taxation would reduce a credit union's ability to grow and serve their members' financial needs.


    What safeguards money deposited into credit unions?

    All credit unions headquartered in Tennessee are required to maintain federal deposit insurance through the National Credit Union Share Insurance Fund, operated by the National Credit Union Administration.

    On all credit union advertising you will find this logo:

    Members of federally insured credit unions have over $5 billion in the National Credit Union Share Insurance Fund. This self-sufficient fund, unique to the credit union movement, has never asked for nor needed any money from taxpayers, unlike other federal deposit insurance funds.

    To learn more about the consumer benefits of this insurance, download this Adobe Acrobat file:  ncusif_benefits.pdf

    In addition to deposit insurance coverage, credit unions provide other means of protecting members' money:

    • annual audit of the credit union by a certified public accountant or through the credit union's supervisory committee
    • board policies governing all phases of credit union operation
    • appropriate training of employees and volunteer officials
    • security systems and security procedures in all credit union service facilities

    How does a consumer benefit from doing business with a credit union?

    Today's credit union members (consumers who own their own financial institution) enjoy:

  • physical and technological convenience (including shared service centers, Internet branching, telephone access to accounts, etc)
  • one-stop shopping (credit unions have a reputation for offering all the services their members need)
  • a personal, friendly, caring staff motivated to offer the highest quality of service possible
  • the lowest possible cost for services (credit union fees are much lower than competitors, and rates are competitive in the marketplace)

  • How can credit unions offer these benefits?

    A credit union is a nonprofit, cooperative financial institution owned and run by its members. Organized to serve, democratically controlled credit unions provide their members with a safe place to save and borrow at reasonable rates. Members pool their funds to make loans to one-another. The volunteer board that runs each credit union is elected by the members. Not for profit, not for charity, but for service is a credit union motto.

    Credit unions are not new. Originating in Europe, credit union history began in this country when the first credit union was formed in Manchester, New Hampshire, in 1909. Today, over 10,000 credit unions with over $480 billion in assets serve more than 79 million people in the United States. More and more people join credit unions every year and they are pleased with the service. Credit unions have rated No. 1 in customer satisfaction at financial institutions for 10 years according to the American Banker Newspaper's annual customer satisfaction survey.

    To join a credit union, you must be eligible for membership. Each institution decides who it will serve. Most credit unions are organized to serve people in a particular community, group or groups of employees, or members of an organization or association.


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    Chattanooga, TN  37424-0550
    Phone: 423-899-2425  or  800-572-7359
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