Banking isn’t just for banks — another type of financial institution that millions of people use every day is called a credit union. Credit unions operate similarly to banks, with a few key differences, which might make a credit union the perfect option for you.
A credit union is a not-for-profit financial collective, and members of credit unions are also considered part-owners. Rather than operating with the goal of making a profit and providing value to shareholders (which are the primary objectives of banks), credit unions make their members the top priority.
Extra earnings that don’t go to overhead and administrative costs are returned to members in the form of higher interest rates on deposit accounts like savings and CDs, as well as lower rates on loans for cars, homes and more.
Credit union loans are sometimes available when loans from larger, nation banking chains aren’t. That’s because credit unions exist to support the local community, so they’re often more likely to lend within it, especially if the loan amount is on the small side. Additionally, credit union loans tend to have much lower rates — whether you’re interested in financing a home purchase or need a loan to buy a car, credit union loans are very competitive in terms of interest rates and features.
The same is usually true of deposit accounts from credit unions. Because a credit union member is also part-owner of the institution, he or she will earn dividends (interest), which are generally much higher than the interest offered on major bank accounts. This joint ownership is also why credit unions refer to their accounts as “share” accounts, as all member-owners’ deposits are treated as shares of the organization.
Don’t let the small-town feel of a credit union fool you — credit unions are regulated just like banks, and are federally insured by the National Credit Union Administration, or NCUA (the credit union version of the FDIC), up to federal limits.
Additionally, they aren’t outdated and inconvenient to belong to, as is a common misconception. Most credit unions have online banking and other technological services that are on par with major banks, if not better. Plus, credit unions belong to ATM networks, so members of one credit union can often use an ATM belonging to any credit union within the network.
Every credit union seeks to benefit a particular group of people or organization. There are credit unions for teachers, military, residents of specific cities, and many more. However, that means in order to become a member of a credit union, you must qualify to join under its field of membership.
Membership eligibility is different for each credit union, but there’s often at least one — usually several — that you will qualify to join nearby. One thing that all credit unions require for membership, however, is a small deposit or membership fee and application. Research the credit unions near you to find out if one meets the needs of your specific situation.