Top 5 Credit Union Myths

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Corporate banks spend a lot of time griping about the preferential tax treatment afforded to credit unions, which they say puts them at a competitive disadvantage. As the little guy, however, credit unions face a few obstacles of their own — and not just their inferior size and wealth.

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Credit unions spend their entire existence swimming against the tide of misinformation. They simply don’t have the clout and credibility that comes with having branches on every corner of every city and A-listers shilling your credit cards in Super Bowl commercials. People tend to think of non-profit, member-owned credit unions as less secure, less professional or less comprehensive than brand-name banks. For many who choose to keep their money with their local credit union, however, the only real difference is a better experience with fewer fees and better rates.

1. Credit Unions Aren’t Real Banks

Taken literally, this one isn’t a myth at all. Credit unions aren’t banks — and that’s the whole point. The myth part is that credit unions are some kind of amateurish, mom-and-pop alternative to big-league professional financial services. 

It’s the myth on which all other credit union myths are based. 

The truth is, credit unions are governed by regulations and laws that are nearly identical to those that govern banks, and they offer all the same services, including accepting deposits, making loans, issuing credit cards and funding small businesses.

Credit unions not only offer the same financial services as banks, but their amenities and tech are the same or better, too. Credit union members bank online, use mobile apps to check their accounts and to transfer funds, schedule direct deposits and send money p2p, same as they would with any modern financial institution.

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2. Money in Credit Unions Isn’t Insured

Ever since the Emergency Banking Act of 1933 created the Federal Deposit Insurance Corporation (FDIC), money deposited in banks has been insured by the federal government. That insurance guarantees depositor accounts up to $250,000.

Credit unions, on the other hand, are not insured by the FDIC like real banks, as the myth goes. If a panic sparks a run of withdrawals, your credit union could just run out of money like banks during the Depression, right? 

While it’s true that credit unions aren’t insured by the FDIC, they are insured by the National Credit Union Administration (NCUA), an independent federal agency that not only insures deposits, but that protects members/owners and charters and regulates federal credit unions. The insurance is backed by the full faith and credit of the United States government, just like FDIC, and guarantees deposits up to the exact same $250,000 limit.

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3. Their Rewards Programs Can’t Compete With Banks

This is another offshoot of the “not a real bank” myth, and it assumes that credit union perks and rewards are the JV version of the rewards programs you’d find at the likes of Citi or Wells Fargo. The reality is that credit unions don’t advertise their rewards programs as aggressively as the big banks, but they’re often as good or better. 

The best flat-rate cash-back credit cards on the mainstream market, for example, are the Citi Double Cash card and the Wells Fargo Active Cash card, which both deliver 2% cash back. Alliant Credit Union, however, crushes them both with a Visa card that pays 2.5% — the best in the industry.

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There are many such examples, but points, miles and cash back are only part of the story. Traditional banks charge fees that gnaw away at gains from their customers’ rewards. Credit unions generally avoid those fees. Also, the real rewards are the lower interest rates that credit unions are able to charge and the higher yields they’re able to pay thanks to their status as nonprofit, member-owned institutions that don’t have to deliver profits to shareholders. Perhaps the best perk of all is customer service that’s known for being friendly, competent and local. 

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4. Membership Is Exclusive

You have to be a member to make deposits or borrow money at a credit union. It’s true that members-only organizations are exclusive by definition, and it’s also true that some credit unions are open only to members of certain organizations, like a branch of the military or a specific employer. 

Most people, however, are eligible to join a credit union for free, whether it’s one in their local community or one with a national presence.  

Once you join, you not only get access to the credit union’s financial services — which often come with better rates, fewer fees and superior customer service — but you also become a partial owner of the organization. In this case, the myth might be right — owning a financial institution, after all, is a fairly exclusive station in life.

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5. It’s Hard To Find a Branch or an ATM

The final stubbornly enduring myth is that, unlike big banks, credit unions don’t have branch locations or ATMs that are as ubiquitous as Starbucks, and therefore aren’t as convenient or accessible. That myth misses the cooperative nature of member-based nonprofits like credit unions. 

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By joining together with other credit unions, local nonprofit financial organizations can form sprawling nationwide cooperatives with enough reach to rival Chase and TD Bank. Co-Op Financial Services, for example, operates more than 30,000 surcharge-free ATMs and more than 5,600 shared branches nationwide. If you join a credit union that’s part of the Credit Union Center, you instantly have access to more than 5,000 branches.

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