The History of Credit Unions: How "People Helping People" Changed Banking Forever
Discover how credit unions started in 1840s Germany, spread to America, and became a $2 trillion industry serving 130 million members. Learn why credit unions offer better rates than banks.
What Is a Credit Union?
Before we dive into history, let's answer the basic question: what exactly is a credit union?
A credit union is a not-for-profit financial institution owned by its members. Unlike banks, which are owned by shareholders seeking profits, credit unions return their earnings to members through better rates, lower fees, and improved services.
Think of it this way: when you join a credit union, you're not just a customer—you're a part-owner.
Where Did Credit Unions Start?
Credit unions have a fascinating origin story that begins in 1840s Germany, during a time of widespread poverty and exploitation by loan sharks.
The German Beginnings (1840s-1850s)
In 1849, Friedrich Wilhelm Raiffeisen, a German mayor, watched his community struggle under crushing debt from predatory lenders. Farmers and workers had no access to fair loans—only loan sharks charging outrageous interest rates.
Raiffeisen had a revolutionary idea: what if people pooled their money together and lent to each other at fair rates?
He created the first "credit cooperative" based on three principles:
- Self-help: Members helping members
- Self-responsibility: Each member accountable to the group
- Self-administration: Democratic member control
Around the same time, Hermann Schulze-Delitzsch created similar cooperatives for urban craftsmen and merchants.
These German cooperatives proved that ordinary people could manage their own finances—without banks or loan sharks.
Credit Unions Come to America
The First U.S. Credit Union (1909)
The credit union movement crossed the Atlantic thanks to Alphonse Desjardins, a Canadian journalist who studied the German model. In 1900, he opened the first North American credit union in Quebec.
In 1909, he helped establish St. Mary's Cooperative Credit Association in Manchester, New Hampshire—the first credit union in the United States.
Massachusetts Leads the Way (1909)
That same year, Massachusetts became the first state to pass a credit union law, thanks to Edward Filene, a Boston businessman and philanthropist. Filene believed credit unions could help workers escape poverty and build financial stability.
Filene spent his fortune promoting credit unions, famously saying:
"Credit unions make people think about their money and what they want to do with it."
The Federal Credit Union Act (1934)
During the Great Depression, President Franklin D. Roosevelt signed the Federal Credit Union Act of 1934, allowing credit unions to form in any state. This was a game-changer.
The act established credit unions as federally recognized institutions with a clear mission: "to promote thrift and provide access to credit for provident purposes."
How Credit Unions Grew
Post-War Boom (1945-1970)
After World War II, credit unions exploded in popularity. Workers returning home wanted to buy houses, cars, and start businesses—and credit unions were there to help.
Key milestones:
- 1954: CUNA Mutual Insurance Society provides credit unions with insurance products
- 1970: National Credit Union Administration (NCUA) created to regulate and insure credit unions
- 1977: Credit unions allowed to offer share draft accounts (checking)
The Modern Era (1980s-Today)
The credit union industry continued evolving:
- 1980s: Deregulation allowed credit unions to offer mortgages and credit cards
- 1998: Credit Union Membership Access Act expanded membership eligibility
- 2000s: Online banking and mobile apps made credit unions more accessible
- 2020s: Over 5,000 credit unions serve 130+ million Americans
Credit Unions Today: By the Numbers
| Statistic | Number |
|---|---|
| Credit Unions in the U.S. | 4,700+ |
| Total Members | 130+ million |
| Total Assets | $2+ trillion |
| Average Loan Rate Savings | 1-2% lower than banks |
Why Credit Unions Offer Better Rates
This is where history matters. Because credit unions are not-for-profit, they don't have shareholders demanding profits. Instead, earnings go back to members through:
- Lower loan rates: Auto loans, mortgages, personal loans
- Higher savings rates: Your money earns more
- Fewer fees: No or low monthly fees, overdraft fees
- Better service: Members are owners, not just customers
Who Can Join a Credit Union?
Here's something most people don't know: you're probably eligible to join multiple credit unions right now.
Credit unions have membership requirements based on:
- Where you live: Many serve specific counties or states
- Where you work: Employer-based credit unions
- Where you worship: Church/religious affiliation
- Organizations: Join an association for $5-10 and qualify
- Family: Family members of existing members can join
Some credit unions are open to anyone who joins a partner organization (often free or just a few dollars).
The Credit Union Difference
The founding principles from 1840s Germany still guide credit unions today:
- Democratic control: One member, one vote (regardless of account size)
- Not-for-profit: Earnings benefit members, not shareholders
- Community focus: Local decision-making, local impact
- Financial education: Helping members make smart choices
Find Your Credit Union
The hardest part about credit unions? Finding out which ones you can join.
That's exactly why we built CUQualify. In 2 minutes, you can discover which of 4,000+ credit unions you're eligible to join based on where you live, work, worship, and your affiliations.
Conclusion
From a small German village in 1849 to a $2 trillion American industry, credit unions have stayed true to their mission: people helping people.
While banks focus on shareholder profits, credit unions focus on member benefits. That's why they consistently offer better rates, lower fees, and more personalized service.
The question isn't whether credit unions are better—it's which credit union is right for you.
Ready to find credit unions you can join? Take our 2-minute questionnaire and discover your matches.