Credit unions are member-only financial cooperatives offering banking services and financial products. Though they may not have the range of traditional banks, they may have certain benefits such as more favourable rates and a more personalized approach.
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What is a credit union?
A credit union is a member-owned financial institution which offers traditional banking services. Between unions, there is a lot of variation regarding the services they can offer. They can also vary in size; some credit unions are small, volunteer-run operations whereas others can be backed by large corporations.
Credit unions are known for being owned, operated and created by their members as a non-for-profit enterprise.
What do you need to do to become a member of a credit union?
Historically, credit union membership relied on a common bond between people such as working in the same sector, for the same company or living as a part of the same community. However, in more recent years, membership has become more lax in its criteria and now, in most cases, members of the general public are allowed to join.
In order to be a part of a credit union, you will need to open an account which, consequently, makes you a member and part-owner of the credit union. As a member of the credit union, you also will participate in union affairs and decision-making. Each member of the union has an equal right to vote.
What is the difference between a credit union and a bank?
There are a few key differences between credit unions and banks.
Membership & Ownership
To become part of a credit union, people must be members. For banks, anyone is eligible to open an account and there is no need to be a member. Banks operate as a for-profit institution meaning that it is their job to make a profit for their investors. Investors, then, are customers of a bank. For credit unions, becoming a member also means becoming a part owner of the union.
Interest Rates & Fees
Interest rates will vary between different types of financial institutions and there will even be variation within different banks and different credit unions. When looking for a loan, the best advice is to compare interest rates. You can check your local banks and credit unions to see where the most favourable rates are. For example, within banks, online banks tend to have lower interest rates than more traditional banks; however, credit unions will usually have cheaper interest rates than online banks and brick-and-mortar banks.
Banks will also tend to have higher fees than credit unions. This is because they need to make money for their investors. Even though many bank accounts are free to open, there are usually conditions such as specific requirements or minimum account balances which, if not met, can incur fees.
Service & Technology
Something that a bank can provide is a high level of customer service. They tend to be more advanced in this area than credit unions and are also more likely to be supported by a superior level of technology.
Are credit unions a safe way to borrow money?
Credit unions are a safe way to borrow money and, as with banks, credit union accounts are insured via either FDIC or the National Credit Union Administration – this is for amounts of up to $250,000. If you have more than this amount in your account, you should speak to an account manager to discuss the best way forward.
What are the advantages of borrowing with a credit union?
There are many advantages to borrowing with a credit union. Members can typically benefit from lower-than-market-rate fees, better savings, lower interest rates and a more personalized approach to customer service. Because of this personal approach, it is often easier to take out a loan with a credit union than with a bank with whom you have no particular connection.
Another huge advantage of credit unions is that, as a member, you are also an owner, meaning that you have the power to change policies and the manner in which things are done. All decision making is done democratically, with all union members having the chance to vote. This offers a level of influence that is not found in banks or other financial institutions.
Are there any disadvantages to borrowing with a credit union?
It could be argued that credit unions are not as convenient to banks. Banks typically have multiple branches and ATMs across the country. Additionally, banks usually have better facilities, especially when it comes to technological support and online support. Also, in terms of the products available, credit unions might be more limited compared to some of the bigger bank chains.
