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.
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.
To become a member, you simply open “share account”, equivalent to a savings account at a traditional bank. As you deposit money into the union, you are actually purchasing shares. Because they’re 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 than 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. Some credit unions don’t even offer “standard” services like ATM cards or online banking.
One strategy that people often use is to use a traditional bank for day-to-day translations 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.
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 large 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.
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.
Featured image credit: FLICKR
May 21, 2015
May 21, 2015
