When you start bringing in a more consistent stream of cash, you want to make sure that you’re keeping your savings safe and accruing a decent amount of interest. A majority of people entrust their hard-earned money with banks without even considering the other viable option: Credit unions.
This is your money, and you want to make sure you’re getting the most out of it. With that said, we’re going to go over what exactly credit unions are and the top 5 reasons to bank with a credit union, along with some expert tips.
What is a Credit Union?
Both banks and credit unions are similar in the sense that they both offer savings/checking accounts and approve loans for their members. The major difference is that credit unions are not-for-profit and are more community-oriented than the average bank.
Deidre Davis, Chief Marketing Officer at Michigan State Federal Credit Union adds, “credit unions are built to be cooperative financial institutions. Banks are set up to make a profit, making them naturally competitive.”
With each of these features, credit unions are able to provide lower interest loans and much higher interest rates on cash deposits. At the same time, credit unions offer members a pivotal role in the institution, helping to vote on key decisions like interest rates and dividends.
Another key difference is the membership requirements for credit unions. Banks will approve just about anybody for an account (assuming you follow their account guidelines), but you must live in a specific region, work for a certain employer, or meet other requirements to be approved to work with a credit union.
When you bank with any national bank, you’re forced to follow all major decisions made by the national board. Since the members of the board and the bank itself are making decisions to enhance their own profits, your financial needs are often overlooked.
As a credit union member, you’re a co-owner in a sense. You have a say in who’s elected to your credit union’s board of directors as well as some input on the specific rates and fees offered by your credit union.
Because everybody in the credit union has an equal role, you know that decisions are made for the financial good of all members. You’re not simply following the guidelines set by hired board members just looking to pad their own wallets.
Matt Woodley, Founder of Credit Informative, expands, “by belonging to a credit union you're actually an owner and you hold a vote to elect the board of directors. Credit unions essentially return their 'profits' their members via lower account fees, better interest rates, and lower lending rates.”
Lower Interest Rates
The issue with banks is that they have pretty high standards when it comes to approving loans. That means even one late payment on your credit history might immediately deny your application or limit you to loans with abnormally high-interest rates that you can’t afford.
Jared Weitz, CEO and Founder of United Captial Source, Inc. expands, “if you are applying for a loan or credit card and don’t have strong credit, or credit history in general, the chances of being approved are higher with a credit union. The ability of a credit union to offer these perks is largely due to the bank being a nonprofit business model.”
Weitz continues, “in addition to banking perks, credit unions are known for being a source of financial information. Many will offer online resources or in-person seminars that cover learning material on managing credit, preventing identity theft and recovering credit scores.”
With credit unions, your interest rates for loans on cars and mortgages will be substantially lower. In fact, in 2018, the average interest rate for a five-year loan from a bank was about 5.04%, while credit unions offered a mere 3.57%. These values are substantial when it comes to large loans, specifically mortgages.
Better yet, the interest rates on deposits at credit unions are practically unmatched. In some cases, your interest rate might be 4 to 10 times higher than the average bank when it comes to deposits.
That means it’s much easier to build a savings account with a credit union.
Greater Customer Service
Since banks are for-profit and offer services to perhaps millions of customers, your customer service experience might be lacking. After all, for every minute a bank spends helping you one-on-one, another customer (and source of income) isn’t being helped.
Credit unions tend to work with smaller groups of people, meaning you’re more likely to get an employee’s undivided attention. The quality of customer service is also much better.
Valerie Moses, Sr. Relationship Manager at Addition Financial shares, “credit unions are often community-based and tend to offer more personalized service than other financial institutions. Instead of pushing products that may not benefit the individual member, credit unions focus on empowering their members along each step of their financial journeys and ultimately helping members live their best lives.”
For example, since credit unions are not-for-profit, you can be sure that employees aren’t attempting to sway your financial decisions in order to line their own pockets. With that said, it’s clear that working with a credit union provides unmatched customer service with genuine feedback related to finances.
Moses continues, “because of their people helping people philosophy, credit unions often have a strong focus on financial literacy and education for even their youngest members. Many credit unions offer specialized youth accounts that reward your child for saving and help them develop positive money management habits early on.”
Banks are extremely convenient, especially when there are thousands of individual branches nationwide. While this definitely allows you greater access to your cash via ATMs and financial services, there’s also less of a relationship between you and bank employees.
Since credit unions typically only have local branches, you’ll find yourself building positive relationships with the employees that work there. In the long run, these relationships could help you to improve your chances of being approved for a loan or even reduce the interest rates for loans you do get approved for.
Nathan Grant, Senior Credit Industry Analyst at Credit Card Insider elaborates, “if you are looking into a credit union for your business, regional credit unions can be a great choice for businesses because they could offer some specific insights into the local business landscape that you might not get otherwise, in addition to providing the same personalized service that they are known for with personal banking.”
This is at odds with the average bank, which essentially forces you to fill out an application and strictly looks at the data. You might be rejected based on your credit history or the amount of money in your account without ever talking to a live person to figure out your options.
No matter which national bank you align with, there seem to be fees for just about everything. For starters, there are maintenance fees, ATM fees, overdraft fees, service charges and even minimum balance requirements.
Since credit unions aren’t attempting to build a profit, you aren’t going to be charged for just about every financial decision you make. This keeps more money in your account and helps you to build up an even greater savings account. After all, it doesn’t make too much sense to be charged every time you try to manage your own finances.
In addition to saving likely hundreds of dollars per year by avoiding fees, credit unions also have less strict requirements for your accounts. It’s more than possible to open an account with a credit union that has absolutely no fees and doesn’t have a required minimum account balance.
A credit union isn’t the best financial decision for everyone, but they do have their own benefits. You might want to consider switching to a credit union if….
- You want a say in what happens with your money.
- You enjoy low-interest loans and high-interest deposits.
- You value customer service and positive relationships.
- You dislike hefty bank fees.
Make sure you’re weighing the benefits of both banks and credit unions before choosing which is best for you.