What are Credit Unions?

Credit unions are a special kind of bank. They’re set up to help everyday people save money and borrow cash when they need to. You can think of them like a club where the members are the ones in charge.

How Credit Unions Work

Owned by Members

Credit unions work differently than regular banks. If you put your money in a credit union, you’re not just a customer – you’re a member and part-owner too! All the members of the credit union get a say in how things are run.

Profits Go Back to Members

Credit unions use the money that members deposit to make loans to other members who need to borrow. The interest they earn on these loans is the credit union’s income. But they don’t keep all the profits for themselves like a regular bank would. Instead, they give a lot of it back to the members through better interest rates, lower fees, and sometimes even special “bonus” payments.

Focused on Helping Members

The main goal of a credit union isn’t to make huge profits. Sure, they need to make enough to keep the lights on and pay their employees. But more than that, they want to help their members manage money and reach financial goals. Credit unions often provide financial education and have special programs to help members save, get out of debt, or buy their first home.

Joining a Credit Union

Membership Requirements

You usually have to meet certain requirements to join a credit union. This could be living in a certain area, working for a particular employer, or belonging to a specific group like a church or university. These requirements are known as the credit union’s “field of membership.”

Opening an Account

Once you qualify for membership, opening an account at a credit union is a lot like opening one at a regular bank. You’ll fill out some paperwork, show ID, and make an initial deposit. This deposit is your “share” in the credit union. It’s usually a small amount, like $5 or $25.

Accessing Your Money

Most credit unions offer all the same services you’d expect from a bank. You can get a debit card, write checks, and use online banking to pay bills or transfer funds. Many credit unions belong to nationwide “shared branch” networks. This means you can do your banking at other credit unions across the country, just like using your home branch.

Credit Union Services

Deposit Accounts

Credit unions offer savings accounts to help you tuck money away for the future. They also have checking accounts that you can use for your everyday spending. The interest rates on credit union accounts are often higher than what you’d get at a big bank. Also, the minimum balance requirements and fees tend to be lower.

Loans and Credit

When you need to borrow money, credit unions can help with that too. They offer personal loans, car loans, and home mortgages. The interest rates and terms are often better than what you’d get elsewhere. Credit unions also issue credit cards, sometimes with lower rates and fewer fees than cards from major banks.

Other Financial Services

Depending on the credit union, you might have access to other handy financial services. For instance, many offer free financial planning, help with making a budget, or workshops on topics like fixing your credit score. Some larger credit unions even have investment services, business banking, and insurance products available.

Pros and Cons of Credit Unions

Advantages

The personalized service is a big plus of credit unions. When you call or visit a branch, you’ll likely deal with someone who knows you and understands your financial situation. Lower fees and better interest rates are also a significant draw. With their focus on financial education, credit unions can be a great resource if you’re working to get your money matters in order.

Disadvantages

Credit unions are often smaller than major banks. So they might not have as many ATMs or branch locations. Some may lag behind big banks in terms of technology, like mobile banking apps or online loan applications. And while many offer a full roster of financial services, you might not find some specialized accounts or features that the big banks provide.

Credit Unions vs. Banks

Different Ownership Structures

Credit unions and banks offer many of the same services. The key difference is how they’re structured. Banks are owned by shareholders who buy stock in the company. The shareholders elect a board of directors to oversee the bank’s management. In contrast, credit unions are owned by their members. Profits flow back to the members rather than to outside shareholders.

Size and Reach

Banks, especially large national brands, typically have more branches and ATMs. They also tend to have more robust online and mobile banking platforms. However, many credit unions have banded together in co-op networks that offer nationwide ATM access and “shared branching.” So even if your credit union is small, you can still access your money across the country.

Products and Services

Both banks and credit unions offer core products like checking, savings, loans, and credit cards. The difference often comes down to the terms. Credit unions generally have better interest rates on savings, lower rates on loans, and fewer fees. Banks may offer a wider variety of products and specialized services, especially for wealthier clientele or businesses.

How to Choose a Credit Union

Consider Your Needs

Think about what kind of financial services you need now and in the future. Make a list of must-haves, like a free checking account or a low-rate car loan. Consider nice-to-haves too, like mobile check deposit or investment advice.

Check Membership Requirements

Find credit unions you’re eligible to join. See if you qualify based on where you live, work, worship, or went to school. Don’t forget to check if family members are eligible too. If one person in your family qualifies, often the whole family can join.

Compare Offerings

Once you have a list of credit unions you can join, compare their offerings to your needs list. Check out their rates, fees, and services. Visit their websites and read reviews from members. Look into their branch and ATM locations. See if they belong to any co-op networks that would expand your access.

Visit a Branch

If possible, visit a branch of the credit unions you’re considering. Talk to the staff and get a feel for their customer service. Ask about any special promotions for new members. See if they offer additional products you might want in the future, like mortgages or business loans.

Credit unions offer a member-focused, community-driven alternative to traditional banks. By understanding how credit unions work and what they offer, you can decide if joining one is right for your financial needs and goals. The personalized service, better rates, and commitment to member education make credit unions an attractive choice for many people.