Credit Union: Membership Has Its’ Advantages!
Although there are similarities between banks and credit unions, they differ in many respects. Banks are owned by shareholders and are for-profit. Credit unions are member owned by the depositors and are considered not for profit.
This post will discuss only the advantages of credit union membership and not the disadvantages. One must look at both when focusing on one’s individual or family’s needs!
So first you need to meet the membership requirements. It all depends on how the credit union was structured, to begin with.
It could be a corporate credit union for company employees and family members, a teacher’s credit union or simply a city-wide or county-wide credit union that serves that locality.
There are also Federal credit unions in which I used to be a member and their requirement was simply that you be a Federal employee.
In the event that you are interested in joining a credit union and aren’t sure just what the points of interest are, here are few reasons why you might need to join.
Membership is Easy
Credit unions are cooperative financial institutions and are administered by its individuals. It ought to be noted that these institutions are not open to everybody, but rather simply those that are affiliated with the group that it serves. For example, if you are part of a labor union, odds are the union has a credit union that allows every union members and families to join.
Higher Interest Rates
The reason for the higher interest rates on deposit accounts such as checking, savings, Certificate of Deposits and money markets is due to the not-for-profit membership structure.
Instead of having to meet returns for stockholders, the returns are to the members in the form of higher interest rates on the comparable bank deposit accounts.
Loans and Credit Cards
All else being equal, the interest rates charged on loans such as car loans, mortgages, personal loans and credit cards has been historically lower when compared to banks. Only online banks with no brick and mortar presence are able to compete with credit unions, simply because the cost of retail is lowered.
In addition, the chances of getting a non-secure small personal loan or even a depreciating asset car loan are much better at your credit union. It is one of the advantages of being a member with deposits rather than a customer with deposits.
Okay, let’s discuss fees. Will you get charged a fee at a credit union for a non-sufficient fund check that you wrote? Just like at a bank! Yes, of course! However, your membership affords the beauty of a lower fee per transaction than your local bank.
That fee can comparably be about 30% lower in many cases. That can be significant especially if you are having a bad end of the month anyway.
The motivations behind the banks are for profit. This does not make it bad. It simply means that the management will by default have to put the needs of the board of directors and the stockholders above customer interests.
This sometimes creates a situation where the customer’s interests and the banks’ interests are at odds with each other.
However, since the credit union is membership owned this means that potentially all members have a say in the management of the credit union. This creates the unique situation where both the credit union’s management and its depositor’s interests are aligned.
The result is more of a customer-centric experience with lower lending rates, lower fees, higher deposit interest rates and most importantly, a much more engaged and positive customer experience.
Compared with the mega-banks, or even the community banks, most credit unions are financially smaller with only a limited number of locations. This could be a disadvantage in some scenarios.
However, the advantage here can result in better-personalized service-like they know you and your family and most of the other members on a first name basis.
They will try not to place you into a cookie cutter routine when it comes to getting a loan or a credit card when one has a blemished credit report, recently lost income due to a job downsize and so forth.
In other words, they are more nimble in helping you solve your financial crisis and more forgiving than the traditional bank.
This short treatise was meant not to demonize banks, as they also have advantages. It is to help you understand the differences and the advantage of credit unions, with the goal of helping you make informed decisions.