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.
5. Credit card offers
The NCUA also indicated that the average interest rate for credit cards was 11.55 percent for credit unions and 12.89 for banks. So there isn’t much of a difference in terms of APR, but the plastic from credit unions are usually less costly in terms of fees.
Been turned down by all the major banks? Try your local credit union. Its borrowing standards are likely to be more flexible, and they may be willing to work with you, especially if you are a member in good standing. And if you’re self-employed, you already understand how tough it can be to be approved for anything with major banks.
Credit Unions are also a great source for car loans. Check out the car loan search in our Solutions Center. It’s populated entirely by credit unions and you’ll find rates as low as 2 percent.
7. Earnings on savings accounts
Interest rates on savings are low across the board right now. Credit union savings accounts generally fare a little better than those in major banks, but this margin, again as of June 27, was extremely modest. Credit union savings accounts yielded earnings of 0.13 percent on average, while banks earned 0.12.
8. Customer service
The credit union may not have a 24/7 customer service line for you to call at 2 a.m. when you have a burning question about your account, but rest assured that the focus will always be on you. The credit unions I’ve joined have been staffed by friendly representatives who knew me by name. I can’t say I’ve had that experience with banks.
Also, there’s no need to worry if your card is lost or stolen, because there is typically an after-hours hotline you can call to report it.
You can rest assured that your funds are safe in the credit union’s hands. Similar to most major banks, all accounts are federally insured up to $250,000 and backed by the U.S. government.
What if I want in?
Credit unions usually serve individuals affiliated with a particular organization or geographic region. But this doesn’t necessarily mean you won’t be able to slip through the cracks. To search for a credit union in your area, take a look at:
For another great source for information on mortgages, car loans, credit cards and more, check out our Solutions Center section on Credit and Debt.
Do you prefer credit unions to banks? Let us know in the comments below or on our Facebook page.