January 16, 2021

Why Credit Unions May Be Best Place to Bank

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There's no shortage of banks to choose from, but the best option to stash your cash might not be a bank at all. Here's why credit unions should be on your radar.

Despite their ubiquity, credit unions remain a mystery to some people. Is it a bank? Something different? Do they offer the same things? What do I have to do to join?

In short, credit unions are similar to banks, but a little different (in a good way). They usually offer all the same things (and more). And joining one can be as easy as providing proof of your home address.

But there's much more to credit unions than just that. We break down why credit unions are the best place to bank, including some features you may be surprised they offer.

What Is a Credit Union?

Credit unions are not-for-profit financial institutions. They offer typical banking products like checking and savings accounts, investment accounts, loans, and even credit cards.

Unlike for-profit banks that are owned by their investors, credit unions are owned by their members, meaning they're actually cooperatives. (You might have seen that term used in reference to small grocery markets or farms; this is kind of the same idea.)

While banks are open to everyone, membership eligibility to a credit union is dependent on one of a few factors: who you're employed by, where you live, or a group you belong to (such as a trade association). This is usually called the "field of membership."

While you might not able to join just any credit union out there, there's likely a credit union that does serve you based on one of the factors above. Wondering why you'd want to join? Keep reading to find out.

Fun fact: As not-for-profit cooperatives, credit unions don't have to pay federal income taxes. However, they do still pay other federal, state, and local taxes.

Why Should I Join a Credit Union?

For one reason or another, many people tend stay with the same bank they opened their first student checking account with (I was one of them).

But there are some compelling reasons why you might want to opt for your local credit union instead. We discuss some of the features and perks you'd get to take advantage of below.

1. Credit unions are committed to their community

You support local, small businesses, so why should who you bank with be any different? Like we mentioned above, credit unions are not-for-profit financial cooperatives.

Instead of passing off profits to executive leadership like many banks do, credit unions usually invest extra funds into related 501(c)3 charities or back into the cooperative itself. By improving the credit union's technology, accessibility, or other factors, they can give members a better banking experience.

And it's not just something they like to do - it's typically dictated in a credit union's bylaws. By their very nature, credit unions have their member's best interests in mind. Most even offer financial education services as a benefit, plus other perks (we cover those further down).

2. Credit unions offer just as many financial products

Although some credit unions have membership in the millions, many still think of them as small operations that lack the same features as the big banks.

In reality, credit unions have a comprehensive menu of financial products to offer. Here's what you can expect at most mid-sized credit unions:

  • Checking accounts
  • Savings accounts
  • IRAs
  • Money market accounts
  • Share certificates (which pay dividends)
  • Loans (auto, real estate, student, personal)
  • Credit cards, and more

If you consider yourself financially savvy, you'll know that product offerings are just one thing that make a bank worth joining. What it really comes down to are the interest rates. If you're still on the fence about credit unions, the next point we cover might just convince you.

3. Credit unions have better interest rates

Here's the big one. In addition to being community-driven and having a members-first mentality, credit unions are known for having some of the best interest rates on the market.

Referring to data provided by the National Association of Federal Credit Unions[1], credit unions not only offer better rates on investment products, but charge cheaper rates on loans and credit cards. Here's just a few examples of the national average rates:

1-Year CD, $10K

  • Bank average rate: 0.22%
  • Credit union average rate: 0.45%
  • Point difference: +23

Liquid IRA Account

  • Bank average rate: 0.15%
  • Credit union average rate: 0.31%
  • Point difference: +15

Rewards Credit Card

  • Bank average rate: 13.51%
  • Credit union average rate: 10.31%
  • Point difference: -321

Auto Loan (Used), 36-Month

  • Bank average rate: 4.73%
  • Credit union average rate: 3.08%
  • Point difference: -165

The cost advantages aren't just limited to interest rates, either. In many cases, credit unions charge fewer fees than their traditional bank counterparts. Because they're not-for-profit, credit unions don't depend as heavily on generating revenue in the same way that banks do.

4. Credit unions have all the same features as banks (and more)

There are some essential features that we've come to expect from most banks: 24/7 access to ATMs, foreign currency exchange, handy mobile apps.

Not to be outmatched, credit unions typically offer the same features, and with better customer service.

Take ATMs, for example. Even if a credit union has one branch, they likely have far more ATMs that you can access in the area and even around the country. Many credit unions are part of shared ATM networks, such as the CO-OP Shared Branch Network, which offers over 30,000 ATMs nationwide to members of participating credit unions[2]

Many, if not most, credit unions also offer:

  • Mobile banking apps
  • Foreign currency exchange and purchase
  • Financial education workshops
  • Custom financial counseling
  • Coin redemption machines
  • Notary public services
  • Identity theft protection
  • Tax preparation services
  • Local discounts

What's more, with a credit union, you can typically expect higher-quality customer service and tailored assistance.

With a smaller group of members to serve than most banks, credit unions can afford to offer a personal touch to their service that many banks lack. Even if you decide to leave a credit union at any point, you're still welcomed back because your membership is honored for life.

5. Credit unions have the same financial protections as banks

Most people can appreciate the fact that (nearly all) banks have FDIC protections. This means that if the bank were to go under, your funds (up to $250,000) would be insured by the Federal Deposit Insurance Corporation (or FDIC). The FDIC also supervises banks for safety and consumer protection.

Credit unions are not subject to FDIC protections, but don't worry. They have their own government agency that supervises, regulates, and insures all federally charted credit unions: The National Credit Union Administration.

Like the FDIC, the NCUA insures your funds up to $250,000 if the credit union were to fail (excluding investment accounts, just like the FDIC). But keep in mind, the NCUA does not oversee state-chartered (or private) credit unions. Luckily, those only account for 2% of credit unions.

How to Join a Credit Union

Think you've found your financial match? Joining a credit union can be incredibly easy and quick. Here's what to do:

  1. Check (and satisfy) the eligibility requirements
    As we mentioned above, one of the distinguishing factors of a credit union is their "field of membership," which dictates who is eligible to join.

    Don't be fooled - in many cases, the field of membership is where you live (i.e., a specific city, county or state), where you work, what groups you're a part of (like a trade association), or even who your relatives are (many CUs let relatives of members join).

    To start your credit union search, consult the credit union search tool offered by the National Credit Union Administration.

  2. Bring a little cash (or check, or your debit card) to make your first deposit
    Opening an account with a credit union will usually require a small fee that acts as your initial deposit. But no worries, it's usually between 5 and 25 dollars, and can be made via cash, check, or even transferred electronically from another bank account you have.

  3. Fill out the application, either online or in-person
    Much like banks, most credit unions make it easy on you by letting you fill out a brief application online, but you can always choose to go into a branch.

    The application will most likely ask for your: name, date of birth, physical address, contact info, state-issued ID, and employment info.

After filling that out and making your initial deposit, you're pretty much good to go. The credit union may send you home with (or mail you) some standard documents and info to welcome you on board, including a list of perks you can take advantage of.

Bottom Line

Considering all they have to offer and the lengths they go to serve their members, there's no reason that credit unions should play second fiddle to big banks. If you're in the market for a loan, investment product, or are looking to switch to another checking account, you'd do well to consider your local credit union.

Before joining, be sure to ask how their rates compare to local banks and what added perks they offer. And once you join, don't be afraid to keep in touch and take advantage of their financial education services. Credit unions have a reputation for high-quality customer service for a reason.

References

  1. ^ "Compare CU Rates": CU Lookup, 2020.
  2. ^ "CO-OP Shared Branches and ATMs": CO-OP, 2020.

Write to Holly Z at holly.zorbas@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts. And remember that you can listen to CreditDonkey Radio any time.

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