Many people have expressed outrage at the billion dollar bonuses paid to executives in the banking industry, but they continue to use their services and contribute to these bonuses without realizing that they can get a piece of that pie. There is a very real alternative to big banks that is available to anyone, the credit union.
A credit union is a not-for-profit financial cooperative owned by its members. Profits return to members as better loan rates, higher savings rates, and lower fees – and deposits are federally insured by the NCUA up to $250,000.
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Table of Contents
What Is a Credit Union?
On their surface, credit unions function fairly similarly to banks, but they are fundamentally different in purpose and in the way they view your money.
Credit unions are not-for-profit institutions. This allows them to offer better rates to their members, both on loans and on savings. The board of directors is also made up of volunteers, who are elected by the membership of the union, so you don’t have to pay extra fees for bigger bonuses. And your money is just as protected: federally insured credit unions are covered by the NCUA up to $250,000 per depositor – the same protection the FDIC provides at banks.
How Do You Join a Credit Union?
To become a member, you simply open a “share account”, equivalent to a savings account at a traditional bank. As you deposit money into the union, you are actually purchasing shares. Because their overhead is reduced, credit unions usually have lower fees for typical banking interactions and at the end of the year, any profit that they do realize, is distributed to the membership of the union as dividends based on how many shares each person owns.
Each credit union is very different from the next. If you want to find one that provides all the services of your bank, you should be able to. If, on the other hand, you don’t need all these services, you can find a simple credit union that offers higher rates on savings and lower rates on loans. Most credit unions today offer online banking and belong to shared networks like Co-op or Allpoint, giving members access to tens of thousands of fee-free ATMs nationwide – but service menus still vary, so check before joining.
Credit Union vs Bank: Which Should You Use?
One strategy that people often use is to use a traditional bank for day-to-day transactions and paying bills. Then they use a credit union for loans and for socking money away for retirement. The simple sense of inaccessibility that having your money in the right credit union can create can really work to your advantage. Linking your accounts between your bank and your credit union makes it easy to move money between them and take advantage of what both institutions have to offer – we compare the two in detail in bank or credit union: which is right for your money.
What Are the Downsides of a Credit Union?
It is important to remember that credit unions are, by their very nature, smaller than banks. They are usually tied to a local community and therefore when you leave that community, you may also leave the small-town advantages behind. If you travel to another city or state and use your card, you may end up getting charged processing fees. Check the fine print or see if your credit union has an agreement with other institutions that allow free withdrawals before you swipe your card.
Is a Credit Union Right for You?
The real advantages of a credit union really kick in for people who have some savings and are trying to build it up. So, you can ask yourself:
- Is the speed and convenience of working with a big bank more important than the personal service and better rates offered by being a member of a credit union?
- Do I do enough banking to earn a dividend at the end of the year?
- Can I count my savings on one hand?
If you are living paycheck to paycheck, then the interest rate advantages of a credit union won’t help you very much. But if you have something to contribute and you are excited about working locally and being a part of a community that helps each other, then a credit union might be the perfect fit for you.
FAQ
Is my money safe in a credit union?
Yes. Federally insured credit unions are covered by the NCUA up to $250,000 per depositor, the same protection the FDIC provides at banks.
What’s the difference between a credit union and a bank?
Banks are for-profit companies owned by shareholders; credit unions are not-for-profit cooperatives owned by members, which typically means better rates and lower fees.
Who can join a credit union?
Membership is based on a “field of membership” – your employer, location, school, or an association. Many credit unions today have broad eligibility requirements that almost anyone can meet.
Can I use both a bank and a credit union?
Yes, and many people do: a bank for daily transactions and bills, a credit union for loans and long-term savings.
Featured image credit: FLICKR
Take control of your money, optimize your spending and grow your savings automatically
