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

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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.

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Shen Lu
Shen Lu |

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

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