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What Is a Credit Union and Why Should You Consider Joining One

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Citizens Equity First Credit Union Bank Review
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Have you ever wondered how a credit union is different from a bank? These two types of financial services institutions function similarly in that they provide an array of services, including deposit accounts and loans. But they are ultimately different in ownership structure — a credit union is a not-for-profit organization owned by its members, and a bank is a for-profit entity owned by its shareholders.

Credit unions are chartered by the National Credit Union Administration (NCUA) or by a state government, and they exist for their community members only.

Advantages of credit unions

Better rates, lower fees

Because credit unions are not-for-profit organizations, they boast competitive rates and fees for their members, unlike commercial banks. Credit union members typically enjoy higher interest rates on their deposit accounts, as well as more affordable loan products.

According to the Credit Union National Association (CUNA), credit union members on average can save $102 every year versus banking with commercial banks.

In September 2018, credit unions across the country offered an average 2.15% interest rate on 5-year certificates of deposit (CDs), compared with a rate of 1.75% for national banks, according to NCUA data.

Credit-wise, credit unions have an 18% cap on how much interest they can charge on loans including credit cards, which distinguishes them greatly from traditional bank credit card issuers. Across the board, credit unions charged an average 11.76% interest rate on credit card debt; whereas commercial banks charged 13.36%.

You may compare rates on various financial products offered by credit unions and national banks on this page of the NCUA website.

Read more: The Best Credit Union CD Rates — January 2019

A 2018 CUNA national report suggests that credit unions charge about $3 less on average for each non-sufficient fund in a checking account than banks do, and almost $10 less for late payments on credit card debt. In terms of mortgage closing costs, people who use credit unions for loans pay $210 less than those who take out loans from banks.

They may be more willing to work with you if you have poor credit

If you’re looking for a credit builder loan or a small personal loan you can use to improve your credit, a credit union may be more likely to work with you than a big bank. Members of credit unions may also be able to appeal credit decisions if they’re turned down.

Your funds are equally protected

Federal credit unions have their own insurance fund under the NCUA and it matches the same coverage as FDIC insurance — $250,000 per account type per account holder.

Community focus

Credit unions are distinct from banks because they exist to serve their community and members. Instead of being owned by shareholders like banks, credit unions are owned and controlled by their members. And so credit unions are generally known to have better customer services than commercial banks. Your deposit in a credit union makes you a part of the ownership of the institution. Interestingly, in this structure, one person’s loan may come from another’s deposit. It also gives you the right to vote. Moreover, if you are eligible for membership in a credit union, your immediate family members often may become members, too.

Access to nationwide ATM networks

If you are a member with a credit union, you have access to a national network called CO-OP, which has over 28,000 ATMs across the country and allows anyone who belongs to a credit union to access funds without a charge. This is more than what Chase — the bank that has the most ATMs in America — has (18,623).

Disadvantages of credit unions

Limited access to branches

As community financial institutions, credit union branch locations are limited, compared with megabanks. And you won’t likely find your credit union branch when you travel to another country.

Check out MagnifyMoney’s list of the Most Convenient Credit Unions in 2019.

They’re slower to adopt new technologies

Assets of some small local credit unions are often a fraction of those of big national banks. Some don’t even have their own website.

They may also struggle to afford higher costs of adopting the new mobile banking technology, which can limit the need to visit a physical branch or ATM location.

Fees aren’t always lower

While some fees may be lower at credit unions, that doesn’t mean you can always save money in fees with a credit union. For instance, Chicago-based Alliant Credit Union charges an outgoing wire transfer fee ($50 for international and $25 for domestic). Chase Bank, also available in Chicago, doesn’t charge an outgoing wire fee for checking account holders. They also can carry overdraft fees on par with traditional banks, so be sure to read the account terms carefully.

How to join a credit union

Find a credit union online

The NCUA has a Credit Union Locator that can help you find a credit union near you. You can search by address, name or charter number of a credit union.

See if you are eligible

After you locate a credit union in your community, you may visit its website to see if you are eligible for membership. If the credit union does not cite membership requirements on its website, or doesn’t have a website, then you may call or visit its physical location for information.

In general, anyone who belongs to a certain community may join the community’s credit union. Members typically share a common bond. For example, they may

  1. work for the same employer
  2. live or work in the same geographic area
  3. have a family who is a member
  4. belong to the same organization, such as a religious group, school, labor union or homeowners association

Open an account

If you meet a credit union’s membership requirements, you can open an account by submitting proof of your identity, residence address and proof of eligibility. People usually are required to pay a fee — which can range from $5 to $25 — to join a credit union.

Is it safe to deposit money in a credit union?

In terms of safety, there really is no difference between depositing money with a credit union and depositing it with a bank, as long as the credit union is a member of the NCUA. The National Credit Union Share Insurance Fund provides members of federally-insured credit unions with a maximum of $250,000 in insurance coverage.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Shen Lu
Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at [email protected]

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Banking

How to Handle Financial Infidelity in Your Relationship

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

For relationship partners, dishonesty about spending and debt is known as financial infidelity. While partners may be uncomfortable talking about money, keeping secrets can be far more damaging to the relationship. Financial infidelity can lead to devastating scenarios and even bankruptcy, as well as relationship conflicts as severe as breakups and divorce.

A MagnifyMoney study found that 21% of divorced U.S. adults report that money issues ended their marriages, and overspending was the top issue among respondents. Financial infidelity adds another layer of damage because it constitutes a betrayal of trust.

“Financial infidelity does not give us trust and safety with our partner,” said Dr. Bonnie Eaker Weil, Ph.D., psychotherapist and author of “Financial Infidelity: 7 Steps to Conquering the #1 Relationship Wrecker.” “There’s no such thing as an okay financial fib. Any time you do a financial fib, that is a form of cheating.”

That being said, there are varying degrees of financial infidelity, and the intent is not always malicious. Here’s how to handle it in your own relationship.

Financial infidelity: How people lie about money

There are a number of ways that people can be dishonest about money with their partner. Here are some types of financial infidelity to watch out for.

Hiding large purchases

This occurs when one partner buys something out of the ordinary that is more expensive and exceeds any personal spending limits the couple has agreed upon. These purchases are usually eventually uncovered by the other partner, said Jennifer Dunkle, a financial therapist and licensed professional counselor.

Spending money on the kids

A 2018 study about financial infidelity published in the Journal of Financial Therapy found that one of the most common types of dishonest spending is money spent on the couple’s children without agreement or knowledge from the other parent, said Dr. Michelle Jeanfreau, Ph.D., associate professor, licensed marriage and family therapist and the author of the study. While this might seem relatively benign or well-intentioned, it’s still a form of dishonesty, and it warrants a closer look into your finances.

“If you aren’t talking about spending, then maybe that’s a sign that you need to be talking about spending,” said Jeanfreau.

Hiding accounts or restricting access to accounts

It’s okay to keep separate accounts from your partner as long as you are in agreement about spending limits, according to Justus Morgan, certified financial planner and vice president of Financial Service Group.

But if your partner has an account that you don’t know about or refuses to give you the password to oversee an account, that’s a form of financial infidelity. You and your partner are a team, so even if one of you is more comfortable managing your finances, you should both have access to all of your financial information.

Lying about prices or sales

Maybe your partner comes home with a new purchase, and instead of hiding it from you altogether, they lie about the price they paid. Or, perhaps they say they bought it on sale when they actually paid full price.

These are both common lies that emerged during the previously mentioned 2018 study. While it may not seem as malicious as hiding a purchase, lying about price still creates dishonesty in a relationship.

Why people lie about money

In the 2018 study, some participants identified acts of financial infidelity they’d committed but didn’t admit to having been financially unfaithful. Jeanfreau said that could be because they don’t realize that their small secret or lie is actually a form of financial infidelity that can be damaging to their relationship. Another possibility, she said, is that they don’t think there’s anything wrong with financial infidelity.

In a new study authored by Jeanfreau that is under review, researchers identified two common reasons why people commit financial infidelity. One motive for lying may be avoiding a money argument, while another reason is that people want to spend on themselves. Both motivations can indicate underlying problems with a relationship, Jeanfreau said. She also noted that some people may lie to minimize their own insecurities about spending or budgeting if they feel they don’t know how to self-spend within reason.

How to uncover financial infidelity in your relationship

So, how do you find out if your partner is keeping secrets from you? Morgan suggests looking at tax returns and credit reports together annually. It’s a healthy habit for any couple, and it should reveal missing income that was spent on a hidden purchase, as well as any credit card accounts opened without one partner’s knowledge.

If you’re concerned more immediately, you may want to ask your partner to review bank statements, credit card statements or other financial statements together. If your spouse isn’t willing to provide these statements, that should raise a red flag, said Morgan.

What causes financial infidelity?

The outcomes of financial infidelity can range from running up a credit card to bankruptcy to even divorce. So, you’ll want to know what aspects of a relationship can make financial infidelity more likely.

Eaker Weil said opposites attract to begin with, and a saver often attracts a spender and vice-versa; this can create a dynamic ripe for conflict, so understanding your differences is key. She also said that financial infidelity often arises from a lack of empathy or affection for one another: “We use money to hide when we can’t find our partner’s heart very often.”

Both Dunkle and Morgan pointed to a power imbalance as a factor that can increase the likelihood of dishonesty. When one of the spouses is more controlling about money decisions — especially if the spouse earns more and has the attitude that it’s their money — that can create an unhealthy dynamic, Morgan said.

Preventing financial infidelity

Morgan said one of the keys to establishing a healthy relationship around money is to recognize that everyone has different experiences when it comes to money, and that family upbringing often teaches us how to deal with money when we lack more formal instruction.

Eaker Weil even recommends that couples create a family tree with help from their parents and grandparents and share their findings with their partner. This should help to answer questions: how was money handled in each person’s background? Was there fear or deprivation around money? Did people put their family needs before their own? These questions can help predict people’s attitudes about money, an important topic of discussion among couples.

“If you’re able to really understand your own values and beliefs around money, then you’re going to be able to talk to your partner about goals and expectations for your finances,” said Jeanfreau.

She added that financial education should be a part of counseling for newer couples planning to join their finances. If couples learn early on how to communicate with transparency, find a system that works for them, develop a budget and plan and review their finances regularly, it can help prevent financial infidelity behaviors from the start.

Recovering from financial infidelity

Financial infidelity doesn’t have to be the end. But it should trigger a serious discussion, a review of your financial situation and possibly even help from professionals.

Eaker Weil recommends a weekly money talk for couples who have experienced financial infidelity. She said it’s important to approach these conversations with curiosity instead of being reactive, hurt or angry about your partner’s financial infidelity.

But sometimes, the way we talk about financial infidelity can actually make relationship problems worse. Dunkle said there are four destructive patterns in a relationship that need to be corrected when they occur: criticism, defensiveness, contempt and stonewalling.

Replacing those patterns by talking about your own feelings, describing the situation neutrally and describing what you want from your partner positively, rather than negatively, can help couples to move on from a financial infidelity incident. Dunkle also stressed the importance of attending couples therapy, since recovering from financial infidelity can be difficult to manage on your own.

Jeanfreau said the SAFE model is another way for couples to recover from financial infidelity. It’s a four-step process that involves the following:

  1. Speaking the truth, or coming clean about financial infidelity
  2. Agreeing to a plan, which involves setting up a budget
  3. Following that agreement and regularly reviewing it
  4. Having an emergency plan, which usually includes seeking the help of therapists or financial advisors

Don’t assume the worst of your partner. Find out what their intention was, and try to have empathy for their situation. And remember that it’s okay to ask for help. Financial infidelity happens to couples everywhere, and love for each other alone can’t prevent or repair it. It may take patience and a lot of work to get back on track, but financial infidelity doesn’t need to destroy your partnership.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Lindsay Frankel |

Lindsay Frankel is a writer at MagnifyMoney. You can email Lindsay here

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Banking

What Happens After a Fed Rate Cut

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

The Federal Reserve has reduced interest rates once again, and you’re probably wondering what this means for your money. The Federal Open Market Committee (FOMC) cut the federal funds rate in July for the first time since December 2008, then cut again at the September meeting.

In September 2007, the Fed dropped the fed funds target range from 5.25% to 4.75%, then slashed rates nine more times over the course of 15 months, finally ending in December 2008 by reducing fed funds to a historically low range of 0% to 0.25%. It left rates unchanged for seven years, until a small hike to 0.25% to 0.50% in December 2015. This kicked off a string of rate hikes that ended last December, when the FOMC raised the federal funds rate to 2.25% to 2.50%.

At the September 2019 meeting, the federal funds rate was reduced by 25 basis points to 1.75% to 2.00%. Read on to understand how these rate reductions could impact you.

What is the federal funds rate?

The federal funds rate is the Federal Reserve’s main tool for managing interest rates in the United States. Fed funds is the main benchmark for the interest rates on every financial product on the market, including savings accounts, personal loans, mortgages and credit cards.

To put it more precisely, the federal funds rate is the narrow range of interest rates at which banks and credit unions trade federal funds — the balances they hold at Federal Reserve Banks — with each other overnight. The effective federal funds rate is the weighted average of the rates that banks negotiate with each other. Financial institutions use the effective federal funds rate as the benchmark for setting interest rates on all of their other lending and deposit products.

When the federal funds rate goes up, interest rates on financial products also go up. So when the federal funds rate is high, savers rejoice because it means better returns on their deposit accounts. But it also means it’s more expensive for consumers and businesses to borrow money, putting downward pressure on economic activity and inflation, the Fed’s main enemy. It also makes it harder for borrowers to get loans when APRs are higher.

And when the federal funds rate goes down, institutions lower their rates, enabling consumers and businesses to borrow more money at lower rates, thereby driving more economic activity. On the other hand, those looking for the best savings rates, including the best rates on certificates of deposit (CDs), will be disappointed as deposit account rates fall.

What happens after a Fed rate cut?

A Fed rate cut causes a downward shift in deposit account rates. We’ve already been experiencing industry-wide interest rate cuts on savings and other deposit account types in the wake of the July rate reduction.

“When the Fed cuts rates, you’ll see many online banks react within a few weeks,” said Ken Tumin, founder of DepositAccounts.com, also LendingTree-owned. “Reductions in average online savings account rates usually follow close on the heels of a Fed rate cut, within a month or two.”

As for brick-and-mortar bank rates, they’ll also see small drops, but since their rates are already so low, their bottom line will hardly be affected.

How a Fed rate cut affects certificates of deposit (CDs)

Looking at historical CD rates confirms that we can expect deposit account interest rates to drop soon after a cut is announced. Tumin recalls that the rate cuts came quickly after the Fed cut rates in 2007. This was especially true for certificates of deposit, which tend to follow the federal funds rate rather closely. Back then, amid the financial crisis, rates followed until CD rates dropped below 2%, while savings accounts were earning less than 1%.

Below, you can see how closely the average 6-month CD rate followed the federal funds rate until the chaos of the financial crisis peak.

This time around, we’ll probably see more rate cuts like we’ve already been seeing for CDs. However, it’s more important to keep an eye on the Fed’s future outlook for the federal funds rate to determine where CD rates are going.

“If the Fed paints a deteriorating picture of the economy, that will increase the odds of several more rate cuts to come,” Tumin said. “That will put more downward pressure on CD rates, especially the longer-term ones like the 3-, 4- and 5-year CDs.”

How a Fed rate cut affects your credit card and mortgage

A Fed rate cut can help you pay off your credit card bills. Most major credit card issuers will lower their APRs accordingly within one or two billing cycles.

“It won’t move the needle much if [the Fed] only [cuts rates] once — since it’s only 0.25% — but any reduction is helpful when you have credit card debt,” said Matt Shulz, senior industry analyst at CompareCards, another LendingTree-owned site. Lowering your credit card’s variable rate means your credit card balances will accrue less in interest, possibly making it easier to pay down.

A lower federal funds rate will also affect adjustable-rate mortgages and HELOCs, as they’re based on short-term rates. “These should decline in tandem with the federal funds rate,” said Tendayi Kapfidze, lead economist at LendingTree.

Fixed-rate mortgages are less affected by the federal funds rate, instead tracking the 10-year Treasury rate. “A Fed funds cut will likely have little impact on fixed mortgage rates at this point,” Kapfidze said.

Why is the Fed cutting rates?

The Fed looks closely at several factors when considering whether to raise or cut the federal funds rate, including wages, employment, consumer spending and global markets. If the data points to a strong, growing economy, when employment is high and inflation is stable, the Fed may choose to raise the federal funds rate. Again, because that tightens access to money, it tends to slow down growth and prevent overheating. It also helps people save their money more efficiently in their savings accounts.

At the moment, however, we’re seeing the economy’s growth slowing down all on its own. Reports around jobs, spending and wages, paired with the current uncertainties surrounding global trade, have indicated to experts and undoubtedly, the Fed, that the economy is in need of a boost.

“A lower federal funds rate is seen as helpful to the future health of the economy,” Tumin said. A Fed rate cut, after months of weakening data, would hopefully breathe life back into the economy.

Note: This article includes links to DepositAccounts.com, which is also owned by LendingTree.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Lauren Perez
Lauren Perez |

Lauren Perez is a writer at MagnifyMoney. You can email Lauren here