What Is a Credit Union?
If you’ve ever taken out a loan, you’ve probably come across a credit union. At first glance, they seem like a bank because they offer similar financial products. But actually, it is not. Banks and credit unions operate in different ways and have different benefits.
You can get better terms from a credit union than from a bank. Think about this when you put money into a high-yield savings account or open a new credit card. Indeed, this is the superiority of choice.
In this article, we’ll take a closer look at the concept of a credit union and how it works. You will find out how it is cast from the bank. Discover its advantages and disadvantages.
Understanding a Credit Union
A credit union is one form of financial cooperative which provides financial services to its members. Its size can be large or small. The second type works on a voluntary basis. The former may be a large organization with thousands of members across the country.
Large organizations, corporations, and other organizations may create credit unions for their employees and members.
Large unions are created by the efforts of their members and belong to them. Members manage unions. Thus, they are tax-exempt non-profit enterprises.
Credit unions work like this: people who are members of the organization pool their money, which technically means they buy shares that enable them to provide loans, demand deposits, and other financial products and services to each other.
Each of the members receives income from the use of financial services and projects that benefit the entire community.
Credit Unions vs. Banks
Credit unions have their differences compared to banks. First, they are non-profit organizations and exist to serve clients who have a membership. Secondly, unions are owned by members and cooperative organizations so that they provide a safe place to store financial assets and loans at adequate lending rates.
Both organizations accept deposits, issue loans and provide one or another financial service. They tend to serve a specific region or a specific group of people.
Our comparison table shows the differences:
|Who they serve||Mostly customers who live nearby and visit a branch unless it is an online bank.||This could be a group of people, an employer, or a specific region.|
|Savings and CD rates||The figure is usually lower than the national average.||As a rule, the figure is higher than the average bank in the country.|
|Technology||Large institutions use advanced technology, but small ones do not.||Some of the larger credit unions have advanced technology, but smaller unions don’t.|
|Branch access||Typically national||Typically local|
|Amount of product offerings||Wide variety||More limited|
|Deposit insurance||by Federal Deposit Insurance Corporation (FDIC)||by National Credit Union Administration (NCUA)|
How to Join a Credit Union
There are several ways to join a credit union. First of all, you must live in a certain city or work with an eligible employer. Another option is membership in a group, such as a trade union or a school. The third option is when one of your family members is already a member of an organization and can issue you an invitation.
If you do not qualify for any of the above options, or cannot secure the conditions for yourself, then you still have a chance to become a member. Some unions allow you to become a member by joining a participating organization.
Most often, you will be charged a certain small fee. Although occasionally, an organization can pay for it for you. For example, you can join a charitable organization, and they will make a token contribution on your behalf.
In addition to eligibility requirements, you may be required to pay a one-time membership fee and open an account with a small deposit. And it is better to start with a local credit union because the chances of fulfilling all the requirements are much greater.
Why Join a Credit Union
While banks operate for profit, credit unions are non-profit organizations owned by their members. And this means that each participant has the right to vote, which is taken into account when choosing directors.
Also, profits are distributed among all of them at the expense of income from savings and investments. As a result, they provide higher average returns at the national level than traditional banks.
They have lower interest rates than banks. This makes them more attractive to those who want to take out a loan. What’s more, in the union, everyone is treated personally. Concerts, volunteer events, scholarships, grants and donations are often held among members.
They are also offered various bonuses in the form of discounted auto-purchases, free financial settings and free credit checks.
Requirements for Credit Union Membership
Initially, unions were formed by members of a particular group. Members of an organization may be colleagues in the same industry or simply neighbours who live in the same community. But over time, the rules have loosened, and there have been fewer restrictions. Now joining a credit union is much easier.
If you have a business, then you need to open an account with a union service and join it. Once you do this, you will become a member and a partial owner. You will have access to trade union affairs.
You will be able to make decisions on the formation of the board of directors and have an equal voice in voting. It does not depend on how much money will be in your account. After all, each participant receives an equal vote. Membership in a credit organization is insured at the federal level.
Advantages of Credit Unions
Most members of this type of organization notice a high rating for the easy use and conditions of the loan service provided. Like banks, unions have their advantages.
- You are exempt from paying corporate income tax on profits.
- Margins of credit unions are lower than those of banks. This allows them to pay higher annual rates on deposits, as well as charge lower commissions for other services. This saves members money on loans, bills, and savings products.
- Some credit unions may waive certain bank account and credit card fees.
- Individual customer service. Since they are not large organizations, all members are treated on a personalized basis.
- Federally insured, they are backed by the US government. Consequently, customers’ money is always safe.
- Medium to large credit unions may offer mobile banking applications.
Disadvantages of Credit Unions
Like any financial institution, they have their drawbacks. This form of interaction is not suitable for many because there are various conditions that should be taken into account.
- Fewer physical offices than banks. This may affect the quality of service.
- Small credit unions do not use advanced technology, which puts the safety of sites in question.
- Smaller selection of financial products than banks.
- Reduced customer support hours for many credit unions.
- Membership requirements. You may have to live in a certain area to be part of a credit union.
In this article, you learned what are credit unions and how they differ from banks. When choosing an organization, always pay attention to the rating, whether the credit conditions are good, what the commissions are, and the minimum balance requirements and rates offered for savings products.
You can also read our other reviews to understand the topic better. Think about the accessibility of the branch – you should be able to get there easily and solve your problems.
How long does it take to join a credit union?
It usually takes a maximum of one day to open an account with any US financial institution. However, it is another matter if you are registered with a credit union. They do a lot of things by hand and don’t always have cutting-edge technology. Therefore, the process can take up to a week.
When is it a good idea to join a credit union?
If you are a small business owner or would like to support one in your area and live near a credit union, then membership is the best option for you. Another option could be some kind of work at school. Then this format of financial relationships is also suitable for you.
What membership in the credit union can give me?
When you become a member, you get personalized service, voting rights, various bonuses and nice offers only within your community. You will also have lower fees and rates on loans than banks. Additionally, you can insure the deposit.