Yep.
Basically, your $500 savings account is a prepaid guarantee to the credit union that you will pay your $500 loan - the funds for that loan are already there and you can't touch them.
Once you make a payment on the loan of, say, $100 - they will "release" $95 of your savings account. Because, of course, your loan balance is now lower, less the interest they earned in that month on the loan itself (the $5 discrepancy). This is of course an example in simplified numbers; actual figures will vary based on interest rates and the policy of the actual credit union in question, as some handle payments and "release" a little differently.
In the end, yes, your entire $500 savings account will be "released" and you will be able to remove those funds at will depending on the withdrawal rules for the credit union you are using (since some limit withdrawal frequency or amount on savings accounts). You will also earn interest, if applicable to your account, on funds that have been "released" as long as they remain on deposit (you don't take them out).
Secured credit cards work much the same way - the difference is, the original (savings account) deposit is not released in increments. If you pay off the account and close it (as in, your score improves in the future and you open unsecured credit cards, and no longer want/need the secured one) you will receive the security back in one lump sum. If your card is "graduated" - that is, the account becomes unsecured - then the security deposit will be refunded at that point and the card will remain open like a "regular" credit card. The security in this case is only there to guarantee the bank that they can get paid if you fail to make your payments. Many lenders who offer these programs will not give credit limit increases on secured cards, but many will allow you to deposit additional funds to increase your credit limit if you need to. There is no set timeline on "graduation," and some lenders' cards will never graduate and become unsecured, so be sure you are using one that will if that is your ultimate goal. The lenders who do not "graduate" your cards will still return your entire security if you pay off and close the account.
