A credit union is very similar to a traditional bank – it provides loans and other financial services (checking, savings accounts, mortgages, credit cards) to its customers. Another commonality is that credit unions’ customers deposits are federally insured $250,000 per depositor.
But that’s where the similarities end…
Benefits of Credit Unions
Large banks are owned by shareholders and most are publicly traded; credit unions on the other hand are non-profit, and owned by its members.
Since credit union members own the credit union, they get to elect their Board of Directors – this means they have a direct say in how the credit union operates.
Another benefit is that CU members, and therefore get better customer service than patrons at a large, commercial bank.
In addition, credit unions “not-for-profit” status makes them tax-exempt, whereas banks have to pay federal tax. This exemption allows any “profits” made by credit unions to be invested directly back into the credit union, increasing their funds available to loan out, and often resulting in lower loan rates (and higher deposit rates) than at traditional banks.
Advantages of a credit union:
– Customers say it’s a friendlier banking experience
– Higher likelihood of getting a personal loan (or emergency loan)
– Better home mortgage rates
– More favorable terms on an emergency loan
– Lower interest rates on loans and credit cards
– Voting rights in how your CU operates
Credit Union vs. Banks
Unlike most banks, you must become a “member” of a credit union in order to access its loans and services. Each credit union has certain eligibility requirements that must be met in order to obtain membership.
Arguably the biggest downside to credit unions is the lack of convenience. If you bank with a large institutional bank you can find branches and ATM’s in all areas of the country.
We asked Todd Middleton who is the senior content specialist at 1855jetdebt.com about how CU’s are still able to compete:
One of the downsides is that since CUs are smaller (and limited to specific regions) finding a no-fee ATM can be challenging.
If you need the convenience of having multiple branches or ATM locations a national bank is your best bet.