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Credit unions are member-owned organizations that offer traditional banking services.
They’re legally structured to put people before profits. As such, you may be able to earn more money on your savings and pay less interest on loans by letting a local credit union handle your banking needs.
Money expert Clark Howard says he’s a big proponent of credit unions: “Because they’re owned by the membership, their whole structure is about serving the member instead of gouging the customer.”
A credit union is a not-for-profit organization that offers many of the same products and services as a traditional bank.
But by their nature, credit unions exist to serve their members. They often offer more personalized customer service, more favorable terms on loans and none of the “gotcha” fees that big traditional banks have a reputation for imposing.
Although there are a few national credit unions, most are local or regional and require membership. They’re generally a safe place to bank, and they allow you to borrow money at reasonable rates.
Local credit unions may be better for people who want the in-person experience. But there are not any major differences in the products and services that local, regional and national credit unions offer.
When you become a member of a credit union, you’re technically buying shares of a cooperative.
In other words, you become part owner of the credit union. And as a part owner, your vote counts. You can help elect a volunteer board of directors and you can have at least some level of influence on the programs the credit union offers.
I’ve seen credit unions described as “cooperative structures” that create a “cycle of mutual assistance.” If that sounds like teamwork to you, it is. The members of the credit union pool money together. One member’s savings account can become another member’s loan with the credit union acting as a facilitator. The difference between this and a regular bank loan? The facilitator isn’t taking a profit-minded cut. There are no investors to please in the middle.
Because credit unions are not-for-profit companies, any income they generate goes toward projects and services that benefit the community and its members. That can take the form of a financial education and literacy program, charitable giving, or putting the products back to use for the members by paying greater interest on savings accounts or offering lower interest on loans.
Although the Federal Deposit Insurance Corporation (FDIC) does not cover credit unions, the National Credit Union Administration (NCUA) provides the same $250,000 in deposit insurance. So no matter what happens, your money is safe.
Clark says just make sure the credit union you choose has NCUA coverage. All federal credit unions are required to be NCUA insured. Most local credit unions are backed by the NCUA, but some may not be.
If you’re deciding where to open your financial accounts, you may be trying to choose between a credit union and a bank.
Both of them offer safety for your money. You can open a checking account, a savings account and get a loan from either type of institution. Widespread access to ATMs is common for both.
Much like online banks, credit unions usually don’t own national ATM networks. But they usually offer access to ATMs through third-party companies that service multiple credit unions and online banks.
Here are some of the ways that credit unions have an advantage over traditional banks:
Here are some disadvantages of credit unions compared to traditional banks:
As I mentioned earlier, there are some national credit unions, but the vast majority are local or regional. It’s harder to find information on “best credit unions” for that reason.
However, the NCUA provides an excellent credit union locator tool. I put in my ZIP code in Florida and the site gave me a list of 100 credit unions within 35 miles.
Clark always advises looking at your local options before deciding where to open a bank account.
“For the vast market, I love credit unions for checking accounts,” Clark said, praising them for their customer-first approach.
Once you find a credit union that you want to join, you’ll need to become a member.
Not long ago, credit union membership required a common bond. That could be achieved in four ways:
These days, many credit unions have relaxed their membership rules. You can often become a member just by making an initial deposit or making a small donation to a charity or interest group.
For example, you can become an Alliant Credit Union member with a $5 donation to the nonprofit Foster Care to Success. If that’s too much for you, Alliant will even donate on your behalf. Alliant made our list of the best checking accounts.
You can become a PenFed Credit Union member by depositing at least $5 to open a savings account. PenFed made our list of the best savings accounts.
Check the website of your local credit unions to find out their membership requirements.
If you have a lot of money to invest and you’re not living paycheck to paycheck, consider doing your banking at a discount brokerage.
For everyone else, credit unions are usually terrific places to handle your banking needs. Most credit unions offer NCUA coverage, so pick one that has it.
You always want to compare your options when it comes to money. But credit unions usually offer much better deals on loans and can often offer better interest rates on deposits.
This post was last modified on April 16, 2024 2:03 pm
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