Most people previously associated banks with trustworthiness, longevity, and stability in the financial world—at least until recently. With the shake-down of the financial markets and the collapse of many financial institutions, many of us question whether banks are the best way to store, transfer and save money.
Key Takeaways
- Credit unions are community-based banking institutions that are owned, in part, by the union's depositors and customers.
- While similar to traditional banks in some ways, credit unions come with additional advantages that some may find attractive.
- A focus on the community, attractive rates, and added perks might lure you away from your bank and to your local credit union.
Credit Union Benefits Overview
Credit unions are free to make decisions to benefit their members rather than seeking to please stockholders, who may have different interests than the members' interests. As a result, credit unions can offer members lower rates on loans, credit cards, and other products, higher savings rates, and lower fees. Members also benefit from insurance on funds up to $250,000, financial education tools, and significant community involvement.
You can only take advantage of a credit union's benefits if you're a credit union member. To become a member, you'll need to join the credit union based on location, occupation, association, or another factor. Not all people are eligible to join all credit unions, but some credit unions offer innovative ways to become a member, such as joining a nonprofit organization for a small fee.
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1. Better Rates on Savings Products
Credit unions strive to offer great rates on member savings accounts and often best bank interest rates where certificates of deposit (CDs) are concerned, in addition to money market accounts. However, you should shop around for the best high-yield savings accounts to compare returns for other products.
2. Lower Rates on Borrowing Products
In general, credit unions charge lower interest rates than banks on a wide variety of products, including:
- Credit cards
- Fixed-rate mortgages
- Adjustable-rate mortgages
- Used car loans
- New car loans
- Home equity loans
- Personal loans
While you should always shop around and compare rates, starting your loan search at a local credit union may be a real benefit.
3. Lower Fees
Credit unions charge lower fees than other financial institutions, on average. This may include lower or nonexistent fees for account maintenance or fee refunds for everyday banking activities such as ATM withdrawals.
This doesn't mean you won't be charged fees for some services, such as wire transfers or overdrafts. However, fees still tend to be lower at credit unions. Overdraft and nonsufficient fees are 13% to 19% lower at small banks and credit unions than at large banks, according to 2021 research from the Consumer Financial Protection Bureau.
4. Member-Owned Financial Services
Credit unions often consider themselves "financial cooperatives" rather than financial institutions. So perhaps the most outstanding feature of credit unions is that they are member-owned and member-run, with opportunities to vote for a volunteer board of directors elected by members. This board helps run the credit union.
5. Up to $250,000 Insured
Up to $250,000 of your funds in a credit union account is insured by the National Credit Union Share Insurance Fund, as managed by the National Credit Union Administration (NCUA). The $250,000 standard insurance amount is per owner, per insured credit union, for each account ownership category.
6. Perks and Free Education
Some credit unions offer products such as individual health insurance and financial advisory services. Most credit unions focus on community enrichment and financial education, with many offering free classes or other educational services to the community, including debt or budget counseling, in-school credit union branches, and first-time homebuyer programs.
What are the Main Benefits of a Credit Union vs. a Bank?
The main benefits of a credit union vs. a bank are that credit unions tend to offer better rates and customer service, lower fees, and a national network of ATMs. However, a bank may offer more branches and products than a credit union.
What is the Main Disadvantage of a Credit Union?
The main disadvantage of a credit union is not being able to join if you don't qualify for membership. You may also find fewer storefront branches, services, and products available compared to a traditional bank.
Are Credit Unions Safer than Banks During a Recession?
Credit unions may be safer than banks in an economic collapse or recession due to taking fewer large risks regarding consumer and commercial loans and investing. However, a credit union can fail. If a credit union fails, up to $250,000 of your deposited funds are protected by NCUA insurance.
The Bottom Line
If you're frustrated with long lines and unresponsive customer service, a credit union might be the best place to put your money. It's tough to beat a friendly, community-focused financial institution offering lower fees and better interest rates. Compare shopping with traditional and online banks and make sure the credit union you are considering offers the best rates for the service you need.
