Advantages of Credit Unions
Some of the many advantages of credit unions stem from their focus on serving their communities and improving the financial health of their members. And although credit unions offer some of the same products as banks, there are a few notable differences.
Just like with banks, when somebody becomes a member of a credit union, they can open checking accounts and savings accounts and access a lot of investment options. But unlike banks, credit unions are nonprofit financial institutions that are owned by their members.
This means the profits aren’t distributed to shareholders but are used to benefit members in the form of higher savings rates or lower fees, for example.
Why Join a Credit Union?
As credit unions are founded on the fundamental principle of people helping other people, there are a number of obvious benefits to becoming a member.
Lower Fees and Rates
Many credit unions offer some of the best rates on credit products. If you’re on the hunt for car loans, credit cards, or mortgages, credit unions offer financial products that tend to have lower and fewer fees than banking alternatives. Perhaps, one of the most important advantages is the lower interest rate or APR.
A Higher Interest on Savings
Another avenue used by credit unions to distribute profits among members is higher interest rates on savings accounts. Banks don’t offer impressive yields to standard customers, which is why credit unions are at an advantage here.
Less Stringent Qualification Standards
One of the biggest concerns for many people who are looking to banks for loans is their nonexistent or poor credit history. So, what are the advantages of a credit union in this case? Well, these financial institutions have more flexible requirements. Rather than flat out denying applicants a loan or a credit card, a credit union is more likely to work with members to try and work out a solution.
Members’ deposits at federal credit unions and some state credit unions are insured through the National Credit Union Share Insurance Fund. Some credit unions are privately insured, but the NCUSIF is backed by the government and covers individual deposits up to $250,000.
However, bear in mind that privately insured credit unions are not government-backed, but credit union accounts are considered as secure as those provided by commercial banks.
A More Personalized Approach to Customer Service
One of the advantages of credit unions is they are more likely to help members by offering a personalized service. As nonprofit organizations, the unions focus more on your individual financial needs, and some credit unions also provide counseling and training to help members understand more complex financial issues.
For example, many credit unions have a certified credit counselor who can work with members to help them see the bigger picture. Members can get valuable insights into how they can get out of debt, increase their credit score, and secure their long and short-term goals.
Credit Unions Offer a Variety of Services
A credit union is smaller than a bank, but this doesn't mean it has fewer services to offer. The services on offer include mortgage loans, home equity loans, ATMs, overdraft protection, and much more.
A Strong Presence in the Community
Due to membership requirements, credit union members generally have a lot in common. The members are usually living in the same geographic region, so a credit union with a strong presence in the community focuses on meeting the needs of consumers. When compared to banks, one of the advantages of credit unions in this case is the personal touch, which you shouldn’t expect in a highly corporate environment.
Another great thing about a credit union is that all its members are eligible to run for elections as board members or delegates. Each member counts as one vote, and elections are typically held once a year. This effectively makes all the members co-owners in a credit union, granting everyone a say in how a credit union is run and how decisions are made.
Credit Unions Focus on Education
Part of the purpose and mission of a credit union is to educate members on a variety of credit and money issues. Credit unions often host financial workshops and aim to provide a comprehensive level of financial education to their members.
A Few Considerations Before You Use Credit Unions
Although there is no shortage of advantages to using credit unions, there are some additional considerations to keep in mind before you leave your bank.
Credit unions usually cater to a specific community or profession, such as schools, churches, homeowner associations, or labor unions. It may not be so easy to get into a credit union if you do not live in a certain location or you don't have a relative as a member.
Certain credit unions will only have a limited number of branches. If you live far away and you need to visit the credit union in person, this might be frustrating. This may bring you back to a fundamental question: should I join a credit union?
Here, it’s worth noting that many credit unions provide access to ATMs or reimburse members when they use a machine belonging to another institution. Some credit unions may be a part of a larger credit union network which means you can conduct your banking at other branches.
Limited Credit Card Options
We are all used to having our accounts and credit facilities under one bank roof. But if you want to have everything in one place, you may not be able to find the same variety of credit options at your local credit union as you would with a large banking institution.
Potentially Inferior Technology
Most commercial banks offer a range of online avenues for accessing their systems and services. On the other hand, credit union technology may prove to be a major barrier for someone who wants to get things done quickly and expects easily accessible services.
There are a number of credit union advantages if you are looking for an organization that is focused on the community or you have grown frustrated with your bank.
If you believe a credit union might be a good option for your needs and you’re mulling eligibility requirements, it’s important to remember that some credit unions limit membership to certain types of workers or geographic areas, but many are open to all members.
And while they offer lower fees and higher interest rates on your savings, make sure you do a bit of research on credit unions in your area before you leave your bank. Credit unions are not all the same. Therefore, you need to make sure that the organization you choose has the right rates and fees and fits your financial needs.
What is the downside of a credit union?
While there are many credit union benefits, there are also a few downsides, including accessibility issues. Additionally, credit unions aren’t as technologically advanced as large banking institutions and don’t provide ATMs or as many credit options. Additionally, it may prove difficult to get into a credit union if you don’t meet the membership requirements.
Can you lose money in a credit union?
While the Federal Deposit Insurance Corporation or FDIC monitors banks for compliance, they do not oversee credit unions; credit union deposits are insured through the NCUSIF.
Is a credit union better than a bank?
When compared to banks, the advantages of credit unions include lower rates on credit cards and loans, more flexible credit requirements, higher rates on savings accounts, as well as a more personalized approach to services. But the limited number of locations and certain membership requirements may prove to be problematic for some.
Is joining a credit union a good idea?
Before joining a credit union, ask yourself what you want out of your financial institution. If you are eligible to join a credit union and have one in your area, you may be treated to a more personalized service. You can also enjoy reduced rates on loans as well as a higher rate on savings accounts. However, if you don't need to be so hands-on with the organization that manages your money, a bank is perfectly sufficient to cover your basic needs.
I have always thought of myself as a writer, but I began my career as a data operator with a large fintech firm. This position proved invaluable for learning how banks and other financial institutions operate. Daily correspondence with banking experts gave me insight into the systems and policies that power the economy. When I got the chance to translate my experience into words, I gladly joined the smart, enthusiastic Fortunly team.
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