There is a variety of different institutions you can work with to manage your finances. Though banks are the most popular option, credit unions are slowly growing in popularity as consumer trust in banks has taken a hit in recent years due to scandals. But, what sets credit unions apart? Are credit unions right for you? This overview should help you answer these questions and more.
What Are Credit Unions?
Just like banks, credit unions are financial institutions. The main difference is that banks are for-profit businesses that are owned by a small group or handful of individuals while credit unions are not-for-profit organizations owned by all of their members. Credit unions focus on assisting their members with borrowing, receiving inexpensive financial services, and saving.
Higher savings rates are typically available from credit unions. This is important for young adults who are just opening up savings accounts. Credit unions are known for offering personal services, helping members plan for the future, and charging lower fees compared to banks.
Essentially, credit unions operate with a philosophy of members helping other members. For example, many credit union members like the fact that their savings will aid other members in getting loans for new cars or mortgages to purchase homes.
What Is the Difference between Banks and Credit Unions?
In addition to the not-for-profit status of credit unions, there are several other ways they differ from banks. Of course, they provide just about all of the same services, including making loans, accepting deposits, and offering a broad range of other financial services. However, since credit unions are owned by their members, they focus on supplying a safe place to borrow and save at reasonable rates. And, rather than seeking to maximize corporate profits, credit unions return surplus income to their members.
Interest rates on savings and deposit dividends are usually higher at credit unions than at banks and other for-profit institutions, while loan rates and fees are typically lower. Members, the name given to credit union customers, operate credit unions in a democratic manner. Regardless of how much account holders have on deposit in credit unions, they all have an equal say in how the institution is run.
The members elect a Board of Directors that decides who the credit union will serve. Prospective members must be part of a field of membership in order to join a credit union. This is generally based on one’s community, membership in an organization or association, or employment.
Many credit unions will actively expand their field of membership to serve members of modest means when they identify select geographic areas or groups that need access to affordable financial services. Credit unions designated as low income will mainly focus on supplying financial services at reasonable rates in regions that are unserved or underserved by banks.
The National Share Insurance Fund (NCUSIF) insures federally insured credit unions. The National Credit Union Administration (NCUA) runs the NCUSIF. The NCUA is a federal government agency that is backed by the credit and full faith of the United States government. The maximum share insurance coverage at all federally insured credit unions was increased to $250,000 by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. In addition, if properly structured, account balances exceeding a quarter of a million dollars can also be fully insured at federally insured credit unions.
Are Credit Unions Right for You?
Credit unions are popular across the globe. And, in the United States alone, there are nearly 100 million credit union members. In this section, we will ask you a series of questions to determine whether credit unions are the right choice for you.
Do you like personalized service? Credit unions supply personal services meant to aid members in planning for the future, growing their savings, and paying off debt. They help members better handle and understand their financial matters by offering free financial training, counseling, and literacy resources.
Do you want a financial institution with a strong sense of community? Members of credit unions usually have shared interests and appreciate being part of an organization designed to aid other members. This is especially true when the credit union consists of groups with a common workplace, geographic area, or other association.
Do you like having access to a broad range of services? In addition to consumer loans and savings, credit unions provide a selection of services and products to keep pace with the needs of their members. They offer mortgage loans, overdraft protection, ATMs, financial education, member business loans, home equity loans, ACH origination, online banking, direct deposits, and much more.
Are you tired of paying exorbitant fees? Compared to other financial service institutions, credit unions tend to offer fewer and reduced fees for their products and services. This is because of their cooperative, not-for-profit structure. Typically, credit unions do not require you to have a minimum balance in your account.
Do you like the idea of having a say over how your financial institution is run? As a member of a credit union, you get to vote on who will serve on the board of directors as well as other official positions at the annual membership meeting. This is not offered by banks.
Most credit unions are part of the shared branch alliance and the CO-OP ATM network. This is one of the most attractive features to being a member of a credit union. The shared branching and ATMs allow you to do your banking at nearly 4,700 credit union branches and 30,000 cash machines throughout the nation without being assessed any extra fees. In fact, many of the ATMs found in 7-11 convenience stores in the United States are part of this network.
The above information should give you a clear idea of what a credit union is and how it differs from a bank. If you answered yes to any of the questions in the above section, you may want to consider a credit union. Otherwise, please feel free to browse our site to learn more about other banking alternatives.