The Advantages of Banking with a Credit Union
by Jen M.
Many people who think about opening a checking or savings account or seeking out other banking services automatically assume they need to head to their nearest local bank. This, however, is not your only option, and not always the best option. Credit unions offer many of the same services that banks do and are notorious for their exceptional customer service. We want you to know that you have an alternative. Below we offer a broad overview of the many advantages and benefits of banking online with a local credit union. But first, let’s take a look at some major differences between banks and credit unions.
Major Differences Between Banks & Credit Unions
Banks and credit unions are financial institutions that offer many of the same products and services for customers to manage their money. Yet, some specific features set them apart, especially ownership, membership, rates and fees, and the way each institution is insured.
Ownership
When you think of a co-op, you likely think of a living cooperative or a place where you get your groceries. Thinking of a credit union as a financial cooperative is the easiest way to understand the way ownership works. Credit union members are part owners and the institutions are not-for-profit. Each member has at least one type of share account that makes them part-owner of the credit union. In contrast, investors own banks, which are for-profit financial institutions. Many of the differences between banks and credit unions lie in the fact that banks are profit-driven and credit unions are not. The member-focused character of credit unions ensures that members have exceptional benefits and advantages over banks that are only worried about how their stock performs for investors.
Membership
Membership in a credit union is slightly different from ownership and it also sets credit unions apart from banks. Any member can open up a checking account, but each credit union has its own membership requirements that depend on the institution’s objective. This is different from banks, where almost anyone can open an account. Credit unions limit their customer base by setting rules for membership. Credit union membership requirements or its ‘field of membership’ might be based on a workplace, a school, a church or other place of worship, a specific geographical area, or membership in a club or organization.
Some examples of credit unions include those created by a corporation, who only accept employees and their immediate family as members. Teachers’ credit unions are also popular for specific school districts or areas. Some credit unions have broader membership requirements and only need members to live within a certain area. Membership in a credit union doesn’t only get you a checking account and other services, members also elect a volunteer board of directors who votes on policies and participates in growth strategy. Customers at a bank aren’t required to be members, and they do not have the same opportunity for participation.
Rates and Fees
The type and amount of rates and fees is another major difference between banks and credit unions. Banks need to secure profits for their investors, so they typically have higher fees for accounts to make more money and lower rates for deposits to keep more of the profits. Additionally, some banks require customers to make a certain number or certain dollar amount of withdrawals from their checking accounts to earn the highest dividend rate or avoid monthly service or transaction fees. Similarly, free checking accounts at banks come with a host of rules and conditions one must abide by to avoid or reduce fees. For example, a bank might require its customers to have an automatic payroll deposit to their checking account or keep a minimum balance to avoid monthly service fees. Credit unions typically offer free checking accounts without monthly fees and do not require a minimum balance. When fees do exist for credit unions services, they are typically minimal. In most cases, overdraft fees are lower at credit unions. Instead of paying members dividends or profits, credit unions return earnings to their members in the form of lower loan rates, higher savings yields, and lower fees.
Insurance
Accounts in banks and credit unions have protection for up to $250,000, but insurance comes from two different entities. The Federal Deposit Insurance Corporation (FDIC) insures banks and the National Credit Union Administration (NCUA) insures credit unions. If you have more than $250,000 to deposit as you begin doing business with a credit union, you can speak with a customer service specialist to determine the best account types for you and how to make sure all of your funds are insured. The NCUA administers the National Credit Union Share Insurance Fund (NCUSIF), which is funded completely by participating credit unions to insure accounts at all federal and state-chartered credit unions. This includes savings accounts, checking accounts, money market accounts, certificates of deposit, individual retirement accounts (IRAs), and revocable trust accounts.
Benefits of Banking with a Credit Union
You’ve likely heard all the complaints that come with banking with a large bank. Many bank patrons pay high service fees, high-interest rates on credit cards, high loan origination fees, and must deal with subpar customer service. This should not only give you pause but inspire you to seek out alternative banking relationships, especially customer-friendly credit unions. Keep reading to learn about the benefits of banking with a local credit union.
Strong Customer Focus
Partial ownership of a credit union comes with membership, so it shouldn’t be surprising that one of the biggest advantages of banking with a credit union is a strong customer or member focus. This distinctive membership structure ensures that management goals align with member goals, which include other benefits like low fees, no fees, low rates for borrowing, high rates for saving, and the latest technology. More simply put, credit unions aren’t trying to line the pockets of investors; instead, they focus their efforts on providing discounted or free services for their members, and creating enough income to cover operating expenses.
Individualized Service
So many things about credit unions allow them to provide more individualized or more personalized service compared to banks. Credit unions typically have a smaller customer base but have more local branches. This makes it easy for local residents to establish, grow, and maintain relationships with branch managers, member service representatives, call center agents, and other key decision-makers at the branch. Credit unions are often an integral part of a community. Tellers often remember names and recognize members, where banking with a traditional bank typically requires long wait lines and it’s not likely a teller will recognize you or remember your name. Some credit unions enhance individualized service by assigning a specific banker or representative to your accounts. You will likely conduct most of your banking online, but when you need attention, a friendly face will be waiting to help you out.
Higher Dividend Rates on Savings Accounts
When you deposit and save money at a credit union, you typically earn higher dividend rates than you would at a bank. Credit unions only need to cover their operating costs, not make a profit, so they can offer the best rates to their members. You usually find higher dividend rates on all deposit accounts including checking and savings accounts and money market accounts. Rates can range anywhere from four to ten times the dividend rate you would receive from your local commercial bank. Online banks do offer competitive rates, but you do not have the same local personalized service. Even when you do the majority of your banking online, you can always visit your local credit union when you need assistance.
Lower Rates for Loans & Credit Cards
Another great benefit of banking online with a local credit union is lower rates on credit and loan products. Credit unions typically offer some of the best rates for vehicle loans, credit cards, and home mortgages. Often times banks are at least one percentage point higher if not two, or more. You will tend to find some of the lowest APRs on the credit products you need when you visit a credit union.
Low or No Fees
Banking fees can eat up your money, especially for those living paycheck to paycheck or going through financial struggles. One of the largest benefits of banking with a credit union is low or no fees for most deposit products and no fees for applying or underwriting credit products. With regard to deposit accounts like checking and savings, most credit unions offer unlimited debit card use, no monthly service fees, no cost teller withdrawals, no fee electronic transactions, and no surcharge for ATM use. When you add up all of these fees, they can easily total hundreds of dollars each year.
Many traditional banks charge an upfront loan origination fee for any type of personal loan. This can be as much as eight or nine percent, adding more expense for borrowers. Once again, you benefit because credit unions do not have to worry about making money for investors. Most credit unions offer low or no fees for application or origination fees.
Increased Flexibility in Borrowing
Traditional banks remain rather stringent with borrowing requirements for mortgages, car loans, and other personal loans. Often they only make decisions by looking at papers or a computer screen and don’t take the time to know a customer or learn about their personal situation. If your credit report has any blunders, if you have an inconsistent employment history, or you do not have a large deposit or savings account, banks will typically deny you a loan or credit card. The loss of your business means very little to a large bank.
Because credit unions are not beholden to shareholders, they can be more flexible with their lending decisions. Credit unions typically are more willing to work with members who have less than good credit, and they sometimes even make exceptions when members are in good standing with their checking accounts. You can apply online with a local credit union and its easier to meet with a local loan officer for a face-to-face meeting. Whether you are looking for a car loan or a house loan, a member service representative can help find the loan that works best for your situation. Typically, they don’t simply look at your credit score and deny you without further consideration. Instead, credit unions look at the whole picture such as whom a member owes money to, how much, and if they make on-time payments.
More Opportunities for Financial Education
If you are seeking out your first checking account and working on establishing your first banking relationship, credit unions offer excellent opportunities for education. Credit unions are often pillars of their community, who stay involved with locals and some even offer grants and scholarships to their members or family members, especially for college. One of the great advantages and many ways credit unions give back to their members and to their community is by offering financial education. Education can be one-on-one with a credit counselor who helps members with a poor credit rating learn how to pay off debt, increase their credit scores, and plan for the future. In other situations, one or more credit union team members might offer an online or face-to-face workshop to learn about savings, investing, home buying, and any other situation or activity that credit union members might face.
Reference: Dane County Credit Union