Photo (cc) by dave_mcmt
While out and about, you may have passed by the local credit union without looking twice. You have no need for their services, right? Well, at least that’s what you thought.
Are you aware of how credit unions operate and what they entail? If so, you may be inclined to open an account at one close to you or even switch from your bank.
What exactly is a credit union and why is it better?
MyCreditUnion.gov defines credit unions as “not-for-profit organizations that exist to serve their members rather than to maximize corporate profits.” They operate similarly to banks, as they make loans to members and accept deposits.
So, why should I choose the local credit union over big boy banks?
The sole purpose for a credit union’s existence means that it should have your best interests at heart and not the bottom line of the institution. Big banks, on the other hand, are there to turn a profit and will seemingly do whatever it takes to meet their numbers.
For more detail on ways that banks make money from their customers, read this article: “5 Sneaky Ways Banks Make Your Account Go Into the Red.”
Because they follow a cooperative structure, credit unions are owned and operated by their members. Upon making the initial deposit, you will be granted voting rights along with surplus income returned in the form of dividends because cooperatives are owned and operated by members.
As a member, you may also be able to conduct transactions at other affiliate locations outside of your institution. And some credit unions reimburse their members for ATM fees incurred outside of their machines. This was a major lifesaver when I arrived at college and discovered that one of the local credit unions near campus was partnered with the credit union I used in my hometown.
Credit unions have lower expenses, so they are able to pass on the savings to their members. For instance, many credit unions offer free checking accounts with no minimum balance constraints, but you will often have to pay a fee at the big banks if your funds fall below a certain number or you fail to meet other criteria. You likely will also be assessed a fee for each transaction that is processed using overdraft protection.
For more information on how overdraft protection can be deceptive, see: “Report: Big Banks Mislead Customers about Overdraft Protection.”
4. Loan rates
Every loan I’ve ever taken out has been from a credit union, even after shopping around at the big banks. They usually have better rates because they are nonprofit and aren’t looking to make their wallets fatter. According to the National Credit Union Association, as of June 27, 2014, the average interest rate on a 48-month new-car loan was 2.64 percent at the credit union, compared with 4.78 percent at major banks.