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What is a credit union? Credit unions are a viable alternative to traditional banks for those who want a personalized banking experience. They offer some unique advantages over brick-and-mortar and even online banks, but they have their drawbacks as well. Here's a closer look at how credit unions work so you can decide whether one of these is right for you.
A credit union is a nonprofit organization that allows its members to borrow and deposit money just like a bank would. The key difference between credit unions and banks is that banks are for-profit institutions that allow virtually anyone to join.
Credit unions are only open to their members, but these institutions are also owned by their members rather than shareholders. This means the credit union's profits go back to its members rather than to a bank executive's pocket.
Each credit union sets its own rules about who can become a member. Some common factors credit unions use to determine who is eligible for membership include:
In addition, some credit unions allow virtually anyone to join by paying a small, one-time fee if they don't fit any of the other membership criteria.
If you're interested in joining a credit union, check out its membership criteria on its website so you can see if you're eligible to join. You can also reach out to the credit union directly to ask.
There are several advantages to banking with a credit union. Here are some of the most important.
Money you put in a credit union is secure, just like money you put into a traditional financial institution. Credit unions take steps to ensure that only you can access your money, and online accounts are encrypted to protect your information.
Funds at credit unions are also insured by the National Credit Union Administration (NCUA). This is similar to the FDIC insurance banks offer. It protects your money up to $250,000 per depositor per account type against credit union failure.
Credit unions typically offer lower fees on their loans and banking products than large brick-and-mortar banks. This can make it more affordable to work with a credit union, especially for those who worry about monthly maintenance fees with traditional banks.
Credit union annual percentage yields (APYs) aren't quite as high as what you'll find with some of the top online banks, but they usually offer better interest rates than what you see with brick-and-mortar institutions. This can help you earn more money on your savings account.
Credit unions usually operate locally and have great customer service. Many try to form personal relationships with their members. This can be useful when applying for a loan, but it's always nice to have the option to get individualized support from a person who knows your name when you need it.
While credit unions have a lot going for them, they also have their shortcomings.
Most credit unions operate in a local area. That might not be a problem for you if you typically stay close to home, but if you travel outside of the credit union's service area, you might have trouble getting help when you need it.
ATM networks are also usually limited to the credit union's service area, so if you want to get cash while traveling, you'll have to pay an out-of-network ATM fee to use another bank's ATM.
Credit unions typically have smaller budgets than large banks, and this can limit the number of products they're able to offer to their customers. But this varies from one credit union to the next. Most of them are still able to offer a variety of banking products, including checking accounts, savings accounts, money market accounts, certificates of deposit (CDs), and loans.
As discussed above, credit unions aren't always open to everyone. Even if you want to join, it might not be possible if you aren't a member of an affiliated group. It's best to check this before you get too deep into researching the credit union's offerings, so you don't waste your time trying to apply for a credit union you can't join.
Credit unions don't always have the best online banking tools, and some don't have mobile banking apps at all. An increasing number of institutions seem to be trying to offer these services to their customers, but if it's not available at your credit union yet, you'll have to get comfortable visiting your local branch when you need something.
Only you can decide if a credit union is a good home for your money. If you're still not sure, here are a few questions that might help you decide:
If you think a credit union might be a good fit for you, explore a few options in your area. You might also see what's available online. Alliant Credit Union, for example, operates online and has a nationwide ATM network. That might be a good compromise if you're interested in working with a credit union but are concerned about tying yourself down to one place.
A credit union is a nonprofit organization that enables its members to deposit funds and borrow money as necessary. It's similar to a bank in many ways, but credit unions often have membership requirements that limit who can join and they tend to operate in a smaller area.
Each credit union has its own membership requirements. Most credit unions base their membership criterion on a person's employer, family members, geographic location, or membership in an affiliated group. Some also enable anyone to become a member by paying a small, one-time fee.
Credit unions offer a personalized banking experience and they typically have lower fees and higher APYs than you see with large brick-and-mortar banks. Your money is also insured by the National Credit Union Administration (NCUA) so it's protected in case the credit union goes under.
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