Credit unions were born in the late 1800s when a group of people in rural southern Germany pooled some cash to work together to raise their standard of living. The concept came to America in the early 1900s and was granted a federal charter to operate in every state in 1934. The late 1970s saw credit unions win the right to make home loans and issue share certificates, which led to the form they enjoy today. They are member-owned and non-profit, also offering many of the same products and services as banks.
What Is a Credit Union?
Perhaps best thought of as financial co-operatives, the members—who are also customers—own credit unions. Credit unions issue loans, offer checking and savings accounts and provide electronic banking services. They also offer ATMs and credit cards.
Moreover, the National Credit Union Administration covers deposits in federally insured credit unions, just as the FDIC does for bank deposits at traditional banking institutions. Sums of up to $250,000 are covered. This makes credit unions a safe alternative to banks, where people can save, manage, and borrow money.
The Advantages of Credit Unions
The benefits of joining a credit union include lower borrowing costs and higher returns on savings accounts. Credit unions return profits to their members—instead of outside investors—partly by offering better rates and lower fees.
Credit unions are also known for providing better customer service, as well as a number of other benefits.
- Better Customer Experience: A survey conducted by Consumer Reports found some 96% of credit union members are happy with their credit union experience. Because the members are also owners, they tend to be treated better. In other words, customer service is more of a priority at credit unions than at big banks.
- More Consideration for Small Business Owners and Lower Net Worth Individuals: Credit unions typically treat Small business owners better. Because they tend to be community-based, credit unions are interested in seeing more small businesses launch and succeed. Similarly, credit unions tend to be more compassionate when members need smaller loans. Many of them will provide members with emergency loans of as much as $5,000 and short-term loans of up to $2,000. Even though these loans can have high APRs, their terms are typically much more favorable than those of payday loans.
- Community Consciousness: Credit unions also have a tendency to be more involved in the communities they serve. Many of them aim specifically to help low-income people with low-cost services. According to a study by the National Association of Federally-Insured Credit Unions (NAFCU), credit union members received direct benefits ranging from $4.4 to $6.9 billion annually over a ten-year period due to better loan and deposit rates.
- Social Awareness: Over half of credit union CEOs are women, and nearly a third are credit union board members. In contrast, only around 4% of CEOs at publicly traded banks are women. Credit unions more often serve as Minority Depository Institutions, too. They tend to be more focused on providing for the needs of traditionally underserved social groups.
Tips for Choosing a Credit Union
Some credit unions have specific eligibility requirements, such as where you work or what trade or professional organizations you belong to. This requirement has been somewhat relaxed over the years but might still come into play.
You’ll also want to make sure the credit union you join offers the types of products and services you’re likely to need. These can include loans, credit cards, mortgages and investments.
Some credit unions charge monthly maintenance fees. You might also see ATM fees if you use a machine outside of your network. Some of them charge overdraft fees and transfer fees as well. Credit unions sometimes also want you to keep a minimum amount of money in your accounts. You might get hit with a fee if your average balance falls too low. You could also be asked to leave if your average monthly balance is consistently too low.
You’ll want to make sure the credit union is conveniently located for you. While online banking makes trips to a branch less likely, having a branch nearby is still helpful so you can talk to someone in person if you have a problem.
Wrapping Up
Credit unions often offer lower fees, higher interest rates on savings accounts and better customer service than many banks. There’s also the prospect of greater community involvement and a more compassionate attitude towards borrowers. These factors lead the list of the benefits of joining a credit union.
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