Where you choose to place your money can have a significant impact on your financial health. 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.
Many people have mistaken beliefs that prevent them from recognizing potential benefits of credit unions. While people may try to compare credit unions to payday lenders or elite investing clubs-- the truth is that credit unions are like neither of these. Instead, they are more like banks in offering a range of savings and checking account options as well as competitive loan and investment products.
Yet, they're entirely unlike banks in almost all other ways. In this blog, we'll discuss the benefits of credit unions and their many unique and appealing benefits to account-holders.
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.
1. A Not-for-Profit Democratic Co-op
Banks and most other financial institutions have customers. Credit unions, on the other hand, have members. That's because, while banks are corporations, credit unions are non-profit cooperatives. Everyone who gets an account at a credit union is considered a member of that cooperative. That means, as a member of a credit union, you are considered literally a part-owner of that credit union.
When a bank earns profits, those profits are shared with the bank's shareholders, not its depositors. The benefit of credit unions, on the other hand, depositors are all "members," or shareholders, of the credit union, which means they share in any profits.
As a member-owner of a credit union, it is you and the other members, not some elite board of directors, who makes the decisions. On all decisions before the credit union regarding its rules, policies, and operating procedures, every member has an equal vote. That means you help direct the course of the institution charged with securing your money.
2. Better Rates & Lower Fees
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.
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
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.
3. Customer Service & Free Education
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.
Additionally, another way that credit unions apply earnings to benefit members is by offering a wider selection of relevant services for members. These offerings might include financial consulting services and personal health insurance. One service many credit unions are able to offer members is free education through group courses and one-on-one counseling on topics such as retirement planning and credit counseling.
4. Investing Back into the Community
Banks invest their money wherever they see the biggest (or likeliest) possible returns... which is usually right into the pockets of CEO and shareholders.
As a member-owner of a credit union, you get the satisfaction of knowing that your money is being utilized to help other members of your community. Whether that be the community where you live, where you work, or with whom you share a particular vocation or honor, such as a union-based credit union or military or veteran-based credit union.
Instead of filling the pockets of anonymous stockholders, with credit unions, your money is being used to help new small businesses start and succeed in your area. Your money is also helping to clean up local roads, improve local schools and housing, and help your neighbors to weather tough times through charitable causes.
5. Security, Insurance, & Access
A common concern people raise about credit unions is that they are less secure than banks. The truth is, however, is that credit unions are equally as secure as banks, only through a different federal mechanism. Where deposits into a bank account up to $250,000 per account are insured by the Federal Deposit Insurance Corporation, deposits into a federally-chartered credit union account are likewise insured up to the same $250,000 limit per account, only by the National Credit Union Share Insurance Fund.
Note here, however, that certain credit unions are not federally chartered but rather state-chartered, and state-chartered credit unions are not eligible for insurance with the National Credit Union Share Insurance Fund and may not even be required to hold depositors insurance, depending on the state. If a state does require its state-chartered credit unions to hold depositors insurance or if a credit union chooses to do so regardless of requirements, that insurance will be private insurance, and therefore should be investigated closely before you deposit money into an account at such an institution.
One erroneous concern people often pose about credit unions is that they're too small, which they believe means it can be hard to access their money from anywhere outside the credit union's community or area of service. That couldn't be further from the truth, however. Credit unions are networked nationally to allow members access to funds through some 30,000 ATMs and 5,600 shared branches.
How to become a Member of a Credit Union
People can gain membership to credit unions via their employer or employee group, church or religious affiliation, school or other community organization, or even based on their geographic area.
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.
Benefits of Credit Unions vs Banks:
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, how to become a member, or about the benefits of Credit Unions, we'd love to connect! Please contact us so we can discuss how we can help you.