1. Customers First
When you open an account at a credit union, you become a member or owner of that union. Credit unions do not have shareholders, so they operate to satisfy their members. The business focus shifts from maximizing profits to creating the best customer service and support experience. Therefore, policies at credit unions are often more friendly to customers.
2. Lower Fees
One area where banks make profits is through fees, including monthly service fees and loan origination fees. Fees associated with credit unions tend to be lower than those charged by banks. Transaction fees are lower, and credit unions typically do not charge ATM fees. Overdraft fees, which are a significant source of revenue for banks, are also lower. Lower fees mean you can save money when you join a credit union.
3. Better Interest Rates
Credit unions offer higher interest rates on deposits and lower interest rates on loans. Because they do not focus on generating profits but on covering operating costs, credit unions are able to provide better interest rates to their members. Interest rates can be significantly lower for loans, and you may qualify for additional discounts if you set up automatic payments. This means that credit union members are better served and may be able to save a substantial amount on auto loans, student loans, and mortgages.
4. Handling Bad Credit
Credit unions may be more willing to work with you if you have bad credit or difficulty qualifying for a loan. Loan officers will meet with you in person and seek to find loan terms that work for you. If you are interested in obtaining a mortgage and have a poor credit history, a credit union might be the best route for financing your new home. They may also offer educational programs to help you gain control over your budget and develop better financial habits.
5. Qualification for Membership
Credit unions have rules defining who can join. These rules may include requirements such as living in a certain geographic area, working for a specific employer, or attending a particular school. Once you join a credit union, you can remain a member for life, even if you no longer meet the initial membership requirements. Your credit union may require you to maintain an active savings or share account to keep your membership. Once you have this account, you can borrow money, open a checking account, or apply for a credit card.
6. Credit Union Insurance
Credit unions are not insured by the FDIC like banks are. Instead, they are insured by the National Credit Union Administration, which is comparable to the FDIC for banks. The same amount of money is insured by the NCUA as is insured by the FDIC, meaning your account will be insured up to $250,000 if your credit union fails.
7. Disadvantages of Credit Unions
In addition to imposing membership requirements that you may not be able to meet, credit unions tend to be smaller than banks, making it harder to find a branch or ATM when traveling or moving. While many credit unions do not charge ATM usage fees within their networks, if you travel frequently, a credit union may not be the best choice for you. You may also have fewer options at a credit union compared to a bank. Big banks typically offer a wide variety of checking and savings accounts, credit cards, loans, and investment accounts. You have more options to find the choice that gives you the best rewards and fits your financial situation best. Your local credit union may offer only one type or just a few types without rewards.
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Doing Your Homework
Before committing to a credit union or bank, immerse yourself in both and read all the details associated with each product you are interested in. If a high level of personal service, better interest rates, and lower fees are more important to you than advanced technology, more convenience, and a wide range of banking products, then a credit union may be the right choice for you. Alternatively, you can choose to open accounts at both a bank and a credit union to take full advantage of the benefits each has to offer.
Frequently Asked Questions
How do credit unions work?
Credit unions operate similarly to banks, but there are some differences. Credit unions require membership and are owned by their members. Banks are owned by investors. Credit unions keep money in the community, which means they can help locals borrow money to buy homes, for example.
Why do credit unions require membership?
Since credit unions are owned by their members, you must be a member to use them. They are created for the financial benefit and welfare of their members, so their services can only be used by members. When you become a member of a credit union, you become a partial owner.
What do credit unions do with their profits?
Credit unions return any profits they make to their members in the form of lower loan rates, higher deposit rates, and fewer fees.
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Sources:
Experian. “Top 10 Reasons People Love Credit Unions.”
NCUA. “Comparison of Average Savings, Deposits and Loan Rates at Credit Unions (CUs) and Banks.”
Experian. “Can I Get a Loan From a Credit Union With Bad Credit?”
NCUA. “How Your Accounts Are Federally Insured.”
MyCreditUnion.gov. “What Is a Credit Union?”
Source: https://www.thebalancemoney.com/advantages-of-credit-unions-2385855
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