One of my best decisions was transferring my funds to a credit union. I appreciate the personalized customer service, lower interest rates on loans (including mortgages), and higher yields on savings products like share certificates. I have been using a credit union for a couple of years and have no regrets.
Investing information provided in this blog post is solely for educational purposes. Neither IsaveFuture nor its subsidiaries offer advisory or brokerage services, and we do not recommend or advise investors to buy or sell specific stocks, securities, or other investments.
What is a Credit Union?
Credit Unions are not-for-profit organizations owned by their members. The main goal of this institution is to serve members by offering competitive products with better rates and fees than you see in banks. Like traditional banks, they charge interest and account fees but reinvest those profits into their products. As a result, their members get better interest rates when they save or borrow money. They offer a smaller selection of products but still offer similar products and services to banks. Such as:
- Credit cards
- Checking accounts
- Savings accounts
- Loans
How do they work?
Credit unions’ products are very competitive because of the way they are structured. They are structured in a cooperative model. The money from the members is pooled together and used to provide financial services to all members. Then, the gains from the services are reinvested back into the organization.
For instance, members’ savings are used to provide loans to other members. Then, the interest gained from those loans is returned to the members through high-interest rates on savings accounts, low fees, and low-interest rates on loans. In this way, one member’s savings becomes another member’s loan. As these organizations are owned by their members, they have the privilege to participate in the election of a board of directors who oversee the credit union’s management.
The National Credit Union Administration insures federal and some state credit unions via the National Credit Union Share Insurance Fund. The U.S. government backs the NCUSIF and covers individual member deposits up to $250,000 at all federally insured credit unions. Others are privately insured.
What are the main differences between credit unions and banks?
Although credit unions are very similar to banks, there are some differences you should know. One crucial difference is that they are not-for-profit organizations designed for members only. While banks are for-profit and are open to everybody. Compared to traditional banks, they have fewer products and lower-tech banking. However, they cover most of the essential services you may need.
Traditional banks usually offer access to multiple branches more conveniently, while credit unions typically have fewer branches in smaller towns and cities. However, they partner with others nationwide to offset this disadvantage, so members have more branches available.
Who can Join a credit union?
Becoming a member is not complicated, but there are some requirements.
You may qualify based on your:
- Employer – Some employers sponsor their credit unions.
- Family – You may be able to join if one of your family members is already a member of a particular credit union.
- Geographic Location – If you live, work, worship, or attend school in a particular geographic area, you may be able to join.
- Membership in a group – such as a labor union or homeowners’ association may qualify you to join.
- Moreover, you can qualify by joining a participating organization. This may come with a small fee, but sometimes the credit union pays it on your behalf. That is the case with Alliant Credit Union. Alliant allows you to become a member if you join the charity Foster Care to Success, and they pay the $5 fee on your behalf.
- Another requirement to join may include a one-time membership fee (usually up to $25) and a small deposit to open an account (usually $10 or less)
What are the advantages of being a member?
- Higher interest rates on savings: Because credit unions are not-for-profit organizations, they give profits back to their members through higher interest rates on savings accounts.
- Lower loan rates: compared to traditional banks, credit unions offer the lowest interest rates on credit cards and loans.
- Their products may have fees equivalent to those of traditional banks, but they are cheaper. Some credit unions may even waive the fees on some of their products.
- Personalized service: Because they are smaller than banks, they are known for providing more attentive and pleasant customer service.
- As a member, you have the opportunity to vote on significant decisions.
What are the disadvantages?
- Membership is required: You must meet specific requirements to become a member.
- Limited branch locations: Their physical presence is restricted to a smaller geographic area, resulting in limited physical locations. However, some credit unions partner with others to give you more accessibility and safety when conducting your banking. This also reduces out-of-network ATM fees. Sometimes, they go as far as offering fee reimbursements when using another financial institution’s ATM.
- Fewer products available: Compared to a traditional bank, they offer fewer products. However, their products are more competitive than banks.
- Limited technology availability: They do not have the same accessibility to apps and websites because they are not-for-profit.
After all, credit unions offer advantages that are difficult to ignore. Consider this option if you are tired of dealing with big banks and want more personalized service. You can shop online and see which one better matches your needs.
