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What is a Credit Union?
Credit unions are financial institutions, which are similar to banks but here the members own the credit union.
They are nonprofit establishments with the aim of serving their members rather than seeking business and earning profit.
Because of this attitude the customers often get better savings rates and lower loan rates with reduced fees when they finance from credit unions.
However, there are certain requirements to join a credit union. Depending on how a credit union is organized, the requirements could vary.
If you’re considering becoming a member of a credit union let us get to know more about it.
How credit unions work in comparison to banks
Even if the working of banks and credit unions are similar, their main goal is different.
A customer needs to open an account and deposit money in a bank, to become a customer. However, a bank’s obligation is towards their shareholders and not their customers.
In comparison to credit unions, the interest rates on savings are lower and interest rates on loans are higher with banks.
When the difference between the bank’s savings interest rates and the loan interest is larger it gives the bank more scope to make a profit.
Credit unions are member-owned hence they’re unique. When a customer deposits money in a credit union account, they become an owner-member of the credit union. They are both a customer and an owner.
This money that various members deposit in the credit union is used to make loans to other credit union members, similar to banks.
The main goal of a credit union is to serve its members, so the money that could have been profit is taken and used to help credit union members.
Very often credit unions offer better rates on savings products and lower interest rates on loan products compared to banks. Lower fees are also offered by the credit unions.
How is a credit union advantageous to members?
Credit unions offer people a more-personalized service experience.
Since a bank is spread out and does not have every decision-maker within a single community, credit unions, on the other hand, have every decision-maker accessible, this allows customers direct access to the people making decisions about their potential loan or any major financial transactions.
Compared to traditional banks, credit unions could offer other benefits like higher interest rates on checking accounts and savings accounts.
It may also be worth considering online banks because they may offer higher interest rates than many credit unions, so customers can check that aspect too.
But if the intention is to keep the money local, a credit union is the right choice as they offer the best rates.
Usually, credit unions work with the intent of keeping their fees low. Even if credit unions charge fees in most cases they may not have as many types of fees as the banks have. The fees that credit unions charge could be lower than competing banks overall.
The interest rates on loans are quite lower with credit unions than competing local banks. For a customer to check if they are getting the best deal whether they are looking for a personal loan, car loan, or mortgage it is ideal to compare the rates offered by their local credit unions.
What are the downsides of credit unions?
As credit unions are offering many great services to their members, they aren’t always better than banks.
The reason being the customer must meet the first criteria of meeting the credit union’s membership requirements before they can become a member. If the requirement is not met then they can’t join the credit union.
Another disadvantage is if it is a smaller credit union then doesn’t have the size and budget to offer the same services that many large banks offer.
Then comes the technology that credit unions use, including apps, which may not be as updated as the technology of large banks.
There is a possibility that credit unions may not offer as many products that big banks can offer.
Finally, there is a limited number of locations of most credit unions. These locations usually exist in the communities the credit union provides services.
So if a customer is traveling outside of their local area they might not be able to speak with a credit union employee face-to-face if they need to.
What are the membership requirements to join a credit union?
Most credit union members must have certain common requirements to join a credit union.
To get a membership, many credit unions would require their customer to work for a particular employer, live in a certain area, be part of a specific school or a labor union group, or have a family member who is an existing credit union member.
If none of these membership requirements are met, then some credit unions allow customers to become a member simply by paying a small fee and joining the organization.
For example, A customer can become a PenFed Credit Union member if they have joined Voices for America’s Troops or the National Military Family Association. A one-time non-refundable amount of $17 is charged by both organizations.
Conclusion
Now after knowing what is a credit union and getting more information about it consumers can carefully consider their needs and make a decision of whether a bank or a credit union is the right choice for them.
If convenience, flexibility, and updated technology are the priority then a large bank may be a better choice.
But if you’re looking for a more member-focused community institution that can offer good interest rates and lower fees, then credit unions may be the right choice provided they qualify for membership.
One need not be choosing between a bank and a credit union, they can have accounts at both places and take advantage of the best of both bank and a credit union.
I loved that you mentioned that credit unions offer a more personalized experience. I’ve been contemplating switching over to a credit union for almost a year. I think it would be better for getting loans and for getting financial advice.