Credit unions offer financial products such as loans, credit cards and checking accounts, similar to a bank.
However, credit unions offer these services only to their members, who actually collectively own the union.
In this article, we explain what credit unions are, how you can become a member, and consider the advantages and disadvantages, too.
What is a credit union?
A credit union is a non-profit financial organization owned by the individuals who utilize its services. Members of credit unions have access to the same goods and services as those given by regular banks, including credit cards, checking and savings accounts, and short term loans.
Members elect a board of directors to run the credit union and promote their best interests. Credit unions exist to assist their members by providing competitive products with lower interest rates and costs than for-profit banks.
Like banks, credit unions collect interest and account fees, but instead of giving those earnings to shareholders, they reinvest them back into the things they offer.
Because a credit union is owned by its members, you must fulfil certain criteria to create an account, apply for a credit card, or take out a loan. Credit unions have different qualifying restrictions.
Some notable credit union points are:
- Credit unions do not have to pay corporate income tax on their profits.
- Credit unions are financial unions that provide basic banking services to their members.
- Credit unions have fewer alternatives than regular banks, but because they are not publicly listed, they may give consumers higher rates and more ATM locations.
- Credit unions have a lot less physical space than most banks, which could be a problem for customers who prefer to talk to someone in person.
Banks Vs Credit Unions
The primary distinction between credit unions and banks is that credit unions are nonprofit, member-only financial entities, whereas banks are for-profit and available to everyone.
Credit unions are also known for having better customer service at their physical branch locations. This is because most credit unions were started to serve specific areas, towns, or businesses.
A credit union may have fewer product varieties than a bank. For example, a credit union might only offer one or two credit card options, while a bank might have a dozen options to fit different ways of life.
However, fewer items do not imply lower competition: Because they reinvest revenues back into their goods, credit unions have some of the best rates.
It’s critical to ensure that the money you put in your checking and savings accounts is insured. Most credit unions, thankfully, give the same $250,000 insurance that banks do.
Advantages of Credit Unions
Credit unions have various benefits that distinguish them from banks in terms of product offerings.
- Credit unions provide some of the lowest interest rates on credit cards and other financial products, which may save you a lot of money if you carry a balance or take out a loan.
- Higher deposit interest rates: Deposits made to a credit union account may produce a higher yield, allowing you to make more money on your savings.
- Lower costs: Although credit union products frequently have the same fees as banks, they may be less expensive. Additionally, some credit unions may waive some bank account and credit card fees.
- Credit unions are often smaller than banks, so they have fewer consumers. Local credit unions have a reputation for giving better and faster customer service because they were usually set up to serve a certain area.
Disadvantages of Credit Unions
While credit unions provide several advantages, there are a few drawbacks to consider:
- Credit unions require you to join, which can be annoying if you don’t meet the requirements or don’t want to pay to join.
- Fewer product options: Unlike a bank, a credit union may not offer as many financial products.
- There are a limited number of physical facilities since credit unions are frequently confined to a certain town. This might be a problem if you wish to stop by a branch while on the road or if you’re a member who doesn’t reside in the area. To address this, some credit unions collaborate with others throughout the country to reduce out-of-network ATM costs and provide a secure deposit location, but it’s not the same as choosing a worldwide bank.
- Credit unions often have a lower budget for new websites or app features than major banks, resulting in less modern technology.
Credit unions offer lower interest rates on loans, higher yields on savings and better customer service than most banks.
Union Membership Requirements
Credit union membership was formerly limited to people who shared a “common connection,” such as working in the same industry or sector, or living in the same region.
Credit unions have recently relaxed their membership requirements, encouraging anybody to join. To do business with a credit union, you must first become a member by opening an account with them.
You become a member and a partial owner as soon as you do so. That means you have a say in the union’s operations; you vote on the board of directors and other union-related matters.
The voting power of a member is not determined by the amount of money in their account; each member has an equal vote.