A credit union is very similar to a traditional bank – it provides loans and other financial services (checking, savings accounts, mortgages, credit cards) to its customers. Another commonality is that credit unions’ customers deposits are federally insured $250,000 per depositor.
But that’s about where the similarities end.
Benefits of Credit Unions
While most banks are owned by shareholders and are typically for-profit organizations; credit unions on the other hand are non-profit and typically owned by their members. Because of this difference in structure, banking with a credit union has some significant benefits vs. traditional banks.
Since credit union members own the credit union, they get to directly elect their Board of Directors, having some say in how the credit union is run. When it comes to a traditional bank, unless you own stock in the bank you do business with, you have no voting privileges at all. Also, since CU members are partial owners, credit unions usually offer better customer service and a higher level of customer satisfaction than traditional banks.
In addition, credit unions “not-for-profit” status makes them tax-exempt, whereas banks have to pay federal tax. This exemption allows any “profits” made by credit unions to be invested directly back into the credit union, increasing their funds available to loan out, and often resulting in lower loan rates (and higher deposit rates) than at traditional banks.
Advantages of a credit union:
- Many customers say it’s a friendlier banking experience
- Higher likelihood of getting a personal loan (or emergency loan)
- Better home mortgage rates
- Many of the online banking features of a traditional bank
- Lower interest rates on loans and credit cards
- A voice in how the credit union operates
Credit Union vs. Banks
Unlike traditional banks, you must become a “member” of a credit union in order to access its loans and services. Each credit union has certain eligibility requirements that must be met in order to obtain membership.
Example: to be part of the Municipal Credit Union of New York City, you must either be an active or retired employee from a certain list of companies and services (or an immediate family member). However, you may also meet the NYMCU membership requirements by simply living in the tri-state area, paying a one-time membership fee and opening a savings account with a balance of at least $50 to start.
In fact, many credit unions have alternative eligibility requirements that are often easy to meet – you just have to do the research.
Lastly, and arguably the biggest downside to credit unions, is lack of convenience. If you bank with a large institutional bank like Chase or Bank of America, you can find branches and ATM’s in many areas around the country. Since credit unions are smaller and mostly limited to specific regions, you’ll have limited access to branches and ATM’s compared to traditional banks. However, credit unions have tried to mitigate this inconvenience as much as possible by joining networks such as the CO-OP Financial Services network, which allows members of credit unions that are part of the network use thousands of ATM’s across the country, fee-free.
If you need the convenience of having multiple branch and ATM locations across the country and access to numerous financial products, then sticking with a traditional bank might be best for you. However, if the convenience and access to numerous financial products aren’t extremely important factors, and lower interest rates and fees are more important to you, then you might want to give credit unions a look.
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