Are you trying to decide if credit unions are better than banks and which one you should use? In this blog, we'll discuss the benefits of credit unions.
The Benefits of Credit Unions: A Close Look
Where you choose to place your money can have a significant impact on your financial health. By far, the two most common options of where to save your hard-earned money are banks and credit unions. The roles each one serves in our financial system are quite similar. How they go about serving these roles, however, can be quite different.
Which type of financial institution—bank or credit union—is best for your money depends mostly on your current financial condition and your goals. That said, there are certain benefits of credit unions over banks, no matter what your financial state or goals.
What Are Credit Unions
Pretty much everyone knows what a bank is. Credit unions, however, are less well-known. Therefore, before comparing the relative benefits of credit unions and banks, let's be sure you're first clear on what, exactly, a credit union is.
A credit union is a cooperative non-profit organization in which members deposit money that other members can borrow. 121 Financial began in 1935 with the founding of Florida Telco Credit Union to do just this. Today 121 Financial serves almost 50,000 members.
Similarities Between Banks and Credit Unions
Banks and credit unions both take and secure deposits and invest money to raise funds to lend to people and businesses. Banks and credit unions are also beholden to similar agencies and laws regarding mortgages, loans, and financial security.
Moreover, up to $250,000 in bank deposits per account are insured by the FDIC, and the NCUA insures the same amount per account in credit union deposits.
And while banks may have more physical locations and ATMs, credit unions compensate with additional shared locations and cooperative ATM networks. For example, the CO-OP Shared Branch network alone comprises over 54,000 fee-free ATMs and 5,600 shared branches. Today, nearly a third of all Americans are members of a credit union.
Benefits of Credit Unions vs. Banks
Credit unions offer an alternative for people who no longer trust banks but don't want to stow their money underneath their mattress, either.
The following are five advantages credit unions have over banks that apply regardless of how much money you have or make or what you plan to do with it.
Banks are for-profit institutions, while credit unions are non-profit organizations.
When a bank earns profits, those profits are shared with the bank's shareholders, not its depositors. In a credit union, on the other hand, depositors are all "members," or shareholders, of the credit union, which means they share in any profits.
While banks are expected to make profits for their investors, credit union profits are passed down to members by way of lower fees, higher interest rates, and greater access to financial products and vehicles such as:
- Home loans
- Auto loans
- Personal loans
- Online bill pay
- Debit cards
- Paper checks
- Certified checks
- Cashier's checks
- Money orders
- Safety deposit boxes
People can gain membership to credit unions via their employer or employee group, church or religious affiliation, school or other community organization, or even geographic locale.
People can also gain membership to credit unions through a spouse or other family member who has his or her membership with a particular credit union. Other credit unions offer membership to anyone who wants to join regardless of these criteria, generally for a small membership fee to join the association affiliated with the given credit union.
Another benefit, incidentally, of equal ownership of a non-profit credit union is that anytime an issue comes up for a vote, your vote is equal to that of every other member. This rule applies no matter how much or how little you may have in your credit union account comparatively.
Credit unions tend to have lower fees than banks, yet offer higher interest rates on savings. Thanks to the lack of investors from outside the membership, credit unions are generally able to provide better deals on loans, cheaper rates on checking accounts, and higher rates of return on savings and CDs.
In a survey of the largest 50 credit unions in the country, the website Bankrate found that 84% of the checking accounts they offered had no associated monthly maintenance fee. This is one of the benefits of credit unions that many people find particularly attractive when joining a credit union.
3. Customer Service
Due to their community-focused mission and comparably small size, credit unions tend to offer higher quality and more personal customer service than banks. In fact, in a 2017 American Customer Satisfaction Index Finance and Insurance Report, credit unions received a customer satisfaction score of 82%, higher than that of banks.
4. Minimums, or the Lack Thereof
Credit unions don't usually require a minimum deposit to open an account or a minimum balance to maintain it (or, unlike some other banks, to open or maintain it without incurring extra fees.) And those credit unions that do require minimums to open an account generally do not require very large minimums, especially when compared with those of banks. This point alone is one of the many significant benefits of credit unions.
5. Community Investments
Banks invest their money wherever they see the biggest (or likeliest) possible returns. Credit unions invest their money into the communities they serve. If you want to know that your money is staying within your community and helping it to grow stronger, keeping your money with a credit union gives you that opportunity.
Credit Union or Bank: How to Decide Which is Right For You
As mentioned at the outset of this article, whether a credit union or bank is best for you depends in large part on specific factors of your financial priorities. If those priorities include lower fees, higher interest rates, better customer service, and a share of profits on institutional investments, then a credit union may be the better choice for you.
Before starting an account and depositing your money with any bank or credit union, ask all the questions you need to be answered to make your decision. These may include, but are not limited to, the following:
- Fees on checking accounts
- Interest rates on savings accounts and CDs
- Maintenance and overdraft fees
- Customer service contact methods and availability
- Number and locations of physical locations
- Number and locations of ATMs
- Technology like apps and digital access
If you have any questions about 121 Financial, we'd love to connect. Please contact us so we can discuss how we can help you.