Written by: Eric Bank
Edited by: Austin Lang
Reviewed by: Ashley Fricker
I joined a credit union about eight years ago, motivated by the desire to keep my money local. I knew right away it was a good decision, as the employees were helpful and welcoming.
Credit unions are member-owned financial cooperatives that offer reasonably priced financial services to members. Credit unions are not-for-profit organizations, so they return their net earnings back to their members — unlike banks.
A credit union is a cooperative financial organization that is owned and operated by its members to provide credit, checking, savings, and other banking services.
If you’re interested in a banking alternative that’s friendly, caring, and inexpensive, a credit union might be for you. I’ll even show you how to become a member.
Benefits of Joining a Credit Union
Being a member of a credit union can be pretty groovy, with various financial and social benefits. Credit unions charge lower fees, pay better interest rates, and tailor services to help their members.
Lower Fees and Better Rates
Blessed be the credit unions, for they have heeded the good words: Lower your fees! They can do this because they are not-for-profit organizations, not banks that are looking to Hoover up every spare nickel and dime they can find. Any profits that credit unions make go toward improving the member experience.
This model reduces fees on financial products and services, saving you money on everyday banking activities such as maintaining checking accounts, using ATMs, protecting against overdrafts, and getting loans. In addition to lower fees, credit unions also offer more competitive interest rates on loans and deposits.
Members benefit from lower rates on loans — mortgage, auto, and personal. It will cost you less to borrow money, and the loans will be easier to get. You can earn more on your deposits due to the higher interest rates on savings accounts and CDs available from most credit unions.
The twin advantages of lower loan rates and higher deposit rates, while not exactly a ticket to Easy Street, make it simpler for you to achieve your financial goals. The low fees charged by credit unions are good for everyone because they force competing banks to offer things like no-frills checking instead of free toasters.
Community Focus and Personalized Service
Most credit unions support their communities and adapt their services to their members’ needs. You’ll find credit unions sponsoring local events, teaching financial education workshops, and offering scholarships.
Moreover, they offer personalized service to members. Unlike monolithic, impersonal banks, credit unions get to know their members, financially and otherwise.
This personal approach allows credit unions to offer individually tailored financial solutions, advice, and support so that every member gets the attention they deserve. This priority for close relationships between credit unions and the community helps create a supportive atmosphere of inclusiveness for many people, mainstream or marginalized.
Understanding Credit Unions
Most banks, like any other business, aim to make a profit. That’s why some banks have so many fees, and that’s not even considering loan interest and financial planning services. While some of that money goes toward running the bank, a lot of it goes into the pockets of shareholders and directors.
Credit unions are different. Rather than being designed to soak customers for as much as they can stomach, credit unions are wholly owned by their members. That means they invest the profits they make off their services back into the organization, allowing it to offer lower fees, better rates, and a generally more pleasant experience.
You can get just about any banking service at a credit union. Let’s dive into why they are so member-centric.
How Credit Unions Differ from Banks
Check out the table I prepared, which shows the main differences between credit unions and banks. It’ll help you decide whether a credit union makes sense for you.
| ASPECT | CREDIT UNIONS | BANKS |
|---|---|---|
| Ownership | Owned by members | Owned by shareholders |
| Eligibility | Typically, members must meet affiliation criteria | Open to the general public |
| Profit Distribution | Profits returned to members through lower fees and better rates | Profits distributed to shareholders |
| Service Orientation | Focus on member benefits | Focus on maximizing profits |
| Decision-Making | Members have voting rights | Shareholders influence decisions |
| Specialized Products | Offer payday alternative loans | Traditional loans |
| Community Involvement | High emphasis on community support | Varies, often less emphasis |
| Financial Education | Strong focus on financial education and member support | Varies, often less emphasis |
| Insurance | Funds insured by the National Credit Union Administration | Funds insured by the Federal Deposit Insurance Corporation |
As you can see, credit unions are more concerned with member benefits and community involvement than the almighty dollar.
The Role of Members
Before you can join a credit union, you need to buy a stake in it. And I mean a grub stake — $5 usually does the trick. For the small ante, you become a part owner and get an equal vote on how to run the organization. Seldom will so little money yield you many benefits, plus a few optional responsibilities.
The setup is refreshingly democratic. You can influence the credit union’s policies, and you can choose to stay informed about the union’s financial status and any issues it’s facing. Strictly speaking, you don’t need to get involved, but I found it gratifying to participate.
Your vote is your biggest tool for shaping the credit union’s behavior. Through it, you can help ensure that the decision-making process remains democratic. Picture that — the interests of the majority molding the institution’s policies and decisions. Nowadays, that’s almost revolutionary.
As a member, you help elect the members of the board of directors. You can vote for yourself, and if you convince enough others, win a seat at the table. There, you’ll oversee the credit union’s operations and decide its future.
Every member has one vote regardless of the amount they deposit, so the richest person in town can’t roll in and unilaterally take over the credit union. That’s good — unless you are that rich person.
Eligibility Requirements
You must meet certain requirements to join most credit unions. Unlike banks, which are open to the general public, credit unions often require members to share a common trait. I mean something meaningful, not just a love of donuts.
For example, a credit union may limit membership to people:
- who work at the same company
- live in the same community
- belong to a group (church, alumni organization, or labor union)
Limiting membership lets credit unions take on a certain cooperative spirit. You know — you scratch my back, I’ll scratch yours. By ensuring that members share a common bond, credit unions can tailor their products and services for their members.
It doesn’t take much effort to join a credit union — just qualify for eligibility, fill out an application, and fork over $5. This initial deposit makes you a full member and part owner of the credit union.
Typical Credit Union Products and Services
A credit union’s mission statement shapes the variety of financial products and services it offers. These include savings and checking accounts, several types of loans, credit cards, and many other financial solutions that can benefit you while charging minimal fees.
Savings and Checking Accounts
Credit unions offer various deposit accounts: regular savings, checking accounts, certificates of deposit, and money market accounts. All of these focus on providing you with low-cost, high-benefit services.
Interest rates for credit union savings accounts are usually higher than those of banks. This means that you can earn more money while still enjoying the security of insured deposits.
Credit union accounts are designed to please its members. For instance, savings accounts usually have low (or even no) minimum balance requirements and no maintenance fees. Can your bank make the same claim?
Typically, credit union checking accounts offer:
- free online banking services
- mobile banking apps
- unlimited check writing
The accounts often add other perks, including free ATM access, overdraft protection, and rewards programs that pay cash back or points for everyday purchases.
One area where credit unions really shine is personalized service. Credit unions maintain close relationships with their members and strive to help each account holder receive the individual attention and support they need.
Be it in managing accounts, preparing plans for long-term financial goals, or just troubleshooting, the staff at credit unions usually provide responsive, timely, and effective customer assistance. I experienced this firsthand, and I liked it. I’m sure most members do.
Credit Cards and Credit-Builder Loans
Credit-builder loans help you establish or rebuild your credit profile. This type of loan works by letting you borrow a modest amount of money, which the credit union places into a locked savings account.
You must then make regular monthly payments, which the credit union reports to all three major credit bureaus. After completing repayment, you receive all the money in the account. When you make payments on time, this type of loan can boost your credit score.
Credit unions offer other loan and credit services, including personal, car, first mortgage, and home equity loans.
Credit union personal loans are flexible and affordable. You can use a personal loan from a credit union for any purpose, from debt consolidation to paying for unexpected or large expenses. These loans may be unsecured, or you can secure one with your other assets, such as a savings account or stamp collection. These loans are invariably less expensive than credit card cash advances.
Auto loans help credit union members get behind the wheel of a new or used car. They provide competitive interest rates along with flexible terms while keeping monthly payments and overall costs within budget.
Payday Alternative Loans (PALs) are safer, saner, and more affordable versions of payday loans. Many federal credit unions offer PALs, which provide small, short-term loans with much lower interest rates. This loan product helps you manage your urgent money needs without falling into the potential debt trap of high-cost payday loans. On-time PAL repayments will help build credit, something payday loans almost never do.
Credit union credit cards can be secured or unsecured. Secured credit cards require you to deposit cash equal to your credit limit. These cards make sense for members who want to build or rebuild their credit scores and who don’t qualify for an unsecured card.
In contrast, unsecured credit cards have no collateral requirements and usually have very competitive APRs and other terms. Both types of credit cards are very handy for managing expenses, building credit, and earning rewards.
Additional Financial Services and Educational Resources
Most credit unions offer you a one-stop service for mortgages. They offer many types of mortgages, including fixed- and adjustable-rate government-backed loans like FHA and VA Mortgages.
Many credit unions also provide one-on-one mortgage counseling, a very handy resource for first-time homebuyers. By offering competitive interest rates and low fees, credit unions’ mortgage-related services help make your dream of home ownership a reality.
Besides mortgage services, credit unions typically provide financial planning and education. They often conduct activities such as financial workshops, one-on-one counseling, and online tools to help you manage your money.
Credit unions can help with budgeting, retirement savings, investing, and managing credit. Due to the many resources they provide, credit unions can help you make sound financial decisions and understand the reasons why.
Other products that credit unions offer members include insurance — life, automobile, and home insurance — usually at discounted prices. Many credit unions provide business services, including loans and checking accounts, to local entrepreneurs and small businesses.
In addition, credit unions may offer special services for their members, such as student loans, financial aid, and tax preparation. Really, where else can you get so much for a measly five bucks?
Credit Unions Provide Members with Valuable Service
Credit unions provide many benefits, including lower fees, better interest rates, and personalized service. They are cooperatives where members are also owners, and the primary reason for business is customer service, not making a profit. Members are allowed to vote on the credit union’s policies and decisions.
Most of the financial products and services you may need are offered by credit unions, from simple savings and checking accounts to credit-builder loans, auto loans, and even mortgages.
Credit unions also focus on community involvement and educational resources to improve financial literacy. With a strong sense of community and commitment to member service, credit unions really help people address their financial needs. They’re a good thing.
