Consumers looking for alternatives to big banks and financial institutions for their personal finances have the option of opening an account with a credit union. Credit unions offer many benefits for consumers with excellent credit and those with less than stellar credit scores investing for the future to borrowing money for an important purchase.
Explore the benefits of using a credit union over a traditional banking institution to help you choose where to open your next financial account.
What Is a Credit Union?
A credit union is a financial cooperative owned and controlled by its members. Credit unions provide members with a safe place to save and borrow money at reasonable rates. Credit unions offer other financial services, such as check cashing, money orders, and wire transfers. Credit unions are regulated by the National Credit Union Administration (NCUA), a federal government agency.
There are approximately 5,298 credit unions in the United States, with over 120 million members. Credit unions typically organize around a common bond, such as where you live or work, your religion, or your profession. In most cases, anyone can join a credit union if they meet the membership criteria.
Credit unions, as opposed to traditional banks, are not-for-profit entities, which means that they return any excess earnings to their members with higher returns on savings accounts and competitive interest rates on loans.
Types of Credit Unions
Some credit unions are open to everyone, while others restrict to employees of a certain company or members of a specific organization. The two major types of credit unions are state chartered and federally chartered.
State chartered credit unions are regulated by the state in which they are chartered. As a result, they are subject to state laws and regulations, as well as federal laws and regulations. State chartered credit unions must obtain a charter from the state government to operate.
In most cases, state chartered credit unions must obtain insurance from the National Credit Union Administration (NCUA). The NCUA insures deposits in credit unions up to $250,000. State chartered credit unions have several advantages over federally chartered credit unions.
For example, state chartered credit unions can choose to be exempt from specific federal laws and regulations. In addition, state chartered credit unions can tailor their services to meet the needs of their members. As a result, these credit unions offer their members a unique level of service and flexibility.
Federal credit unions are financial cooperatives owned and democratically controlled by their members. They offer a full range of financial services, including checking and savings accounts, loans, and credit cards.
Like their state chartered counterparts, federally chartered credit unions are regulated by the NCUA up to $250,000 per account.
What Are the Benefits of Using a Credit Union?
Credit unions have a long list of benefits compared to traditional and online banks. Their community-driven operation allows credit unions to place their members at the center of focus, a fact that brings benefits in the form of better savings, better loan rates, and a connection with the community.
Without a profit-driven mandate, credit unions can reinvest earnings in their community and to their members’ benefit. As a credit union member, your savings can range from higher savings account rates, which help you build wealth, to paying lower interest payments on a student or auto loan.
For example, Chase Bank currently has a savings yield of 0.02% APY with relationship, meaning the rate is tailored to customers that keep a higher balance. At the same time, Alliant Credit Union offers its members a savings yield of 2.02% APY.
If a consumer places $25,000 in a Chase account and the same amount in a First Federal account, and both consumers deposit $500 per month, the savings after ten years would be:
Chase Bank: $85,109.58
Alliant Credit Union: $96.899.71
The savings difference between the two accounts is $11,790.13, making the credit union a better option. Interest rates are constantly changing, and each financial institution adjusts its yields according to market conditions and special offers. However, the example indicates the difference that seeking the highest possible yield can make.
Lower Loan Interest Rates
When considering taking out a loan, the interest rate is one of the primary concerns. Will the monthly payments be too high? How much will the loan end up costing in the long run? For these reasons, it’s important to compare loan offers from different lenders to get the best deal. Credit unions typically offer lower loan interest rates than banks, making them a good choice for borrowers looking to save money.
Flexible Lending Requirements
Credit unions often have more flexible lending requirements for their members than banks, so borrowers with less-than-perfect credit may still be able to qualify. For example, many credit unions work with borrowers through co-signers or credit-building programs to help them meet auto, mortgage, and personal loan requirements.
Many people choose to bank with a credit union because they offer lower fees than banks. Credit unions are nonprofit organizations, so they don’t have to make a profit for shareholders. Instead, they can focus on providing the best possible service to their members. This structure means they can offer lower fees for ATM withdrawals, checking accounts, and loans.
Elected Board of Directors
Credit unions are unique in that they are democratically owned and operated. This means members have a say in how the credit union is run. One of the ways that members can have a say is through the elected Board of Directors.
The Board of Directors is responsible for setting policies and overseeing the credit union’s operations. They are also responsible for representing the interests of the membership. Having an elected Board of Directors ensures that credit unions are member-focused and that decisions are made in the membership’s best interests.
Credit unions have always been community-minded institutions, and their commitment to the local community is one more way they work to improve the lives of their members and the communities they serve. Projects credit unions take up include affordable housing initiatives and supporting small businesses.
In addition to the financial benefits, a community-minded approach also allows credit unions to build closer relationships with the people and organizations they are working with.
As a credit union member, you can find comfort in knowing that the staff knows who you are and can assist you with your specific issue. Employees also get to know your financial goals and can offer advice on how to reach them.
If you ever have a financial problem with your account or loan product, your credit union will work with you to resolve it. This contrasts with for-profit banks with less regard for their customers’ well-being.
Maximize Your Personal Finances
Credit unions typically offer higher rates on savings and lower loan interest rates. Their customer service and support are more empathetic, and employees strive to help members as the incentive for credit unions rests in assisting the community rather than profiteering.
Next time you are in the market for a banking or investment vehicle, check out your local credit union and compare rates and services to traditional banks.
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Disclaimer: All content on this site is information of a general nature and does not address the circumstances of any particular entity or individual, nor is the information a substitute for professional financial advice and services.