Suppose you’re considering switching banks or shopping for a new mortgage, vehicle loan, savings account, or other financial product. In that case, you may want to explore banking with an organization that isn’t a bank: a credit union.
Credit unions perform many of the same functions as banks and provide many of the same goods. However, suppose you want to retain your money with a nonprofit organization that offers particular advantages and financial assistance to members of your community. In that case, a credit union may be the best option.
Consider what credit unions are, how they operate, and why they may be an excellent location for your money.
What Is the Definition of a Credit Union?
A credit union is a cooperative, not-for-profit financial organization owned by its members. In contrast to banks, which are owned by shareholders and are required to pay earnings to shareholders, credit unions are owned by their members, who are also their consumers. Credit unions serve over 122 million Americans.
Credit unions provide a wide variety of financial products and services similar to banks’. However, a credit union may refer to its accounts and services differently, such as “share draft account” rather than “checking account.” Since credit union members are also owners, the credit union pays “dividends” rather than “interest.”
In the case of a credit union collapse, the National Credit Union Administration (NCUA) covers up to $250,000 in qualified deposits per depositor, each insured credit union, and per account ownership type.
The simple fact is that credit unions are designed to provide a secure environment in which members may save and borrow at affordable rates. Due to their nonprofit status and community-oriented goal, credit unions may sometimes offer considerable advantages over banks and give members some unexpected perks.
Credit Union Advantages
Credit unions’ overarching aim is to improve their members’ financial well-being and serve their communities. You will get numerous significant credit union perks if you join a credit union.
In that it offers loans and lets you open checking and savings accounts, a credit union is similar to a bank. However, there are some areas in which credit unions and banks diverge, and holding a credit union account at the time you file your own case of bankruptcy can provide some challenges you might not have anticipated.
Cross-collateralization is a popular practice among credit unions. This implies that the credit union will utilize the security for your old loan as security for the new loan if you already have a secured loan with them. When cross-collateralized, debts that are typically unsecured, such as credit card debt, become secured debts.
In bankruptcy, secured obligations are handled differently from unsecured debts. Therefore, it’s crucial to understand whether your loans are cross-collateralized.
Loans and Savings Accounts at Better Rates
Credit unions are committed to offering their members competitive rates. Credit unions can pass on profits to members since they are not required to pay dividends to shareholders, as banks do, by lowering loan APRs and increasing savings APYs. Community banks provide some of the best rates on checking, savings, and CD accounts.
Outstanding Customer Service
Credit unions consistently outperform banks in customer satisfaction polls. Consumer Reports, for example, found that 96 percent of credit union members were “pleased” with their credit union. Since a credit union’s consumers are also its owners, these organizations are often more focused on customer care than a bank.
Credit for Small Businesses and Low-Income Borrowers
Credit unions specialize in lending to small companies that bigger banks may neglect or underserve. If you are a small company owner or just want to support local firms, joining a credit union may benefit you.
Credit unions, being charitable organizations, likewise concentrate on giving loans to those in need. Numerous credit unions provide up to $5,000 in emergency loans or $2,000 in cash advance/payday loans. Many folks may get a better price through a credit union rather than a payday lender.
Participation in the Community
Nearly half of credit unions are specifically dedicated to serving low-income neighborhoods. Credit unions aim to link their local community with inexpensive financial services regardless of the area, city, or town in which they reside. Credit unions save their members $12.6 billion per year by providing reduced bank account fees, excellent interest rates, and $5.6 billion on vehicle loans.
Credit unions may significantly impact the financial lives of those who might otherwise face exorbitant check-cashing costs or higher interest rates on automobile loans required to commute to work. Credit unions generate $4.9 billion in yearly economic benefits by being present in local banking markets.
Support for Diverse and Inclusive Communities
Perhaps because credit unions are so community-oriented, with local links in places neglected by conventional banks, they place a high premium on diversity and inclusion.
Credit unions have more than ten times the number of female CEOs in comparison to banks. Credit unions are also more likely than banks to be Minority Depository Institutions (MDIs); credit union MDIs outnumber bank MDIs by more than three to one.
Numerous businesses express their commitment to diversity and inclusion. Credit unions incorporate it into their daily operations by meeting the financial demands of various populations.
How to Become a Member of a Credit Union
Credit unions may have membership requirements. For instance, some credit unions cater only to the military community, and membership is restricted to active-duty military personnel, veterans, other government workers or contractors, or their family members. Other credit unions may limit membership to a specific company, institution, labor organization, or geographic region.
While some credit unions are restricted to specific companies, categories of employees, or geographic regions, most credit unions are available to all members and would welcome your membership. Certain credit unions have a strong internet presence and a national membership base. No matter where you live or work, you may be eligible to join a federal credit union and take advantage of their loan, certificate of deposit, or savings account rates.
To join a credit union, you may be required to pay a fee or make a gift, often between $5 and $25, which covers the cost of owning one share of ownership in the credit union cooperative. You may join a credit union in person or online.
Banks vs. Credit Unions
After learning about the benefits of a credit union, you may ask why anybody would deposit money with a bank. Credit unions provide some beneficial perks and appealing products. Factors influence how consumers pick their banking arrangements. Certain banks may give a broad selection of financial goods, enhanced mobile banking app capabilities, simplified international banking, or enhanced digital banking tools.
Depending on your banking needs and day-to-day financial management, keeping your money at a credit union may help you save on fees, earn a higher rate on your savings, qualify for a better rate on loan, and improve your financial well-being—all while supporting an organization that makes significant contributions to your community’s economic empowerment.
If all of that seems appealing, a credit union may be the ideal choice for you.