Credit unions may not be as popular as banks, but that doesn’t have to always mean they’re not better.
Often operating at the community or city level, credit unions provide millions of Americans with affordable and accessible financial services. Unlike mainstream banks that put profits and shareholder interests first, credit unions prioritize customer needs and cater to them in both good times and bad.
They usually do so by adjusting their fees and interest rates to help customers during periods of high financial stress, and by offering emergency assistance programs.
What are Credit Unions?
Credit unions are not-for-profit financial institutions that offer many of the same services and products as banks, including mortgages, loans, and checking and savings accounts. They were signed into existence by President Roosevelt in 1934 to promote responsible financial habits and make credit available across all of American society.
Not-for-profit financial institutions owned by members
Credit unions are owned wholly by their members, who hold a vote in their credit union’s strategy and policy processes. When you become a member of a credit union, you’re given partial ownership of the institution, and will receive benefits in the form of dividends on interest-bearing accounts in addition to low banking fees.
Over 500 credit unions are designated as minority depository institutions (MDIs) and 51% of credit unions in the United States have female CEOs, compared to just 3% of commercial banks.
Community support and what Credit Unions are doing differently
Unlike banks that work in the interest of their shareholders, credit unions prioritize serving all of their members equally, and their products and services are carefully tailored to the needs of their client base.
This community-focused approach is particularly pronounced during economic crises. Credit unions are more likely than banks to provide assistance and flexibility to members experiencing financial hardship.
During the early days of the COVID-19 pandemic, for example, several credit unions initiated Skip-A-Pay programs that allowed members to skip up to two monthly payments on certain loans in a 12-month period.
Difference between banks and credit unions
Banks place a larger emphasis on the credit history of an individual or business customer. Credit unions, on the other hand, try to look at the loan applicant’s full financial picture, which may include their bank statements, proof of current mortgage, and relationship with the credit union.
Credit unions also often have personal loan products that are designed for small borrowers. They may offer small-dollar loans of up to $50,000, unsecured signature loans that do not require capital, and short-term emergency loans of up to $5,000 as alternatives to the higher requirement loans offered by banks.
Reasons to Make the Switch
Here are 10 facts about credit unions that might help you make the switch.
Credit unions return their earnings to their members
True to their not-for-profit ethos, credit unions return any profits they earn to their members in the form of lower banking fees, free services, and discounts on certain interest rates. Members are the primary stakeholders of credit unions, and without any shareholders to answer to, the key recipients of a credit union’s profits.
Plus, credit unions are exempt from federal taxes because of their nonprofit status. They only have to pay state taxes and therefore have the ability to offer better rates on savings accounts and lower interest rates on loans.
Being a credit union member gives you a sense of community
To be eligible for a credit union membership, you usually have to reside in a certain community, city, or state, be employed in a particular profession or work at a company that sponsors a credit union.
While these criteria may sound like an inconvenience, they’re usually quite broad. They’re only designed this way to give members a common background and a sense of camaraderie. Some credit unions may allow you to join for a fee in cases where you don’t meet the membership requirements.
Credit unions are insured by the National Credit Union Association
Credit unions are insured by the National Credit Union Association (NCUA) and not the bank-focused Federal Deposit Insurance Corporation (FDIC). The NCUA is a federal regulatory agency that works just like the FDIC to ensure that your deposits are safe.
The NCUA Insurance Fund insures deposits up to at least $250,000 per individual depositor.
Members elect the Board of Directors
In almost all credit unions, members elect the Board of Directors that represent the members and are accountable to them. Board members guide the strategic direction of the credit union, from setting loan limits to creating the union’s vision and policies.
All members have a vote
Besides being able to vote for the Board, credit union members also have the ability to vote for various policies and banking services at regular and special membership meetings.
Credit unions put democratic governance at the heart of their operations to ensure that they represent the interests of their members. Unlike banks where customers are simply asked to follow the bank’s decisions and policies in a top-down fashion, credit unions rely on the input of their members to help form their decisions.
Your credit union membership may never expire
When you become a credit union member, you receive a share account that represents your share of ownership in the credit union. As long as you maintain your share account and the deposit in it, you remain a member of that credit union regardless of whether you still meet the original membership eligibility requirements or not.
That means that you can still have a say in your credit union’s policies even if you relocate or change jobs.
Credit unions may share branches
To provide customers with the same number of branch locations as big banks, some credit unions participate in shared branching. Doing so helps them serve customers over a large geographic area.
Members at one credit union can perform the same transactions at another partnering credit union’s branch, or move out of the community that their credit union serves and still be able to access the same banking services.
Access to tens of thousands of ATMs
Shared branching doesn’t just allow you to bank almost anywhere, it also gives you access to nearly 30,000 ATMs surcharge-free across the U.S. As a credit union member, you’re given the privilege of using the ATM services of more than 5,000 credit unions worldwide.
Credit unions actively serve the underserved
Credit unions believe that everyone has the ability to achieve financial success. They work actively to provide members with the best loans, checking and savings accounts, and mortgages to help them build wealth over the long term.
They also promote healthy financial habits by providing products that charge little to no fees, encouraging members to put away money that would’ve been spent on fees and interest rates as savings.
Credit unions give you access to various financial services
Many credit unions offer lower interest rates for loans, higher yields on savings accounts, and faster emergency financial relief than their larger banking counterparts.
As a credit union member, you’re also more likely to receive better customer care and to be offered tailored financial products that can help you stay financially stable through times of financial need.
How to make the switch
Before you make the switch to a credit union, it can be helpful to understand what you’re looking for in order to select the best credit union that’s aligned with your values and financial journey.
Look for a credit union that can serve you
Are you looking to join a credit union that represents the community or city you reside in, or one that has a large association of people with the same professional background as you?
Choosing the right community can give you access to the financial products and services you need as well as a sense of camaraderie among like-minded people.
Understand the pros and cons
Credit unions offer plenty of benefits to their members, but they are not without their drawbacks.
Small credit unions with less than $20 million in assets may not be able to offer mobile banking apps, tiered interest-rate savings accounts, or access to nationwide ATMs and branches like traditional banks. Also, not all credit unions offer commercial loans or credit cards with the same variety of benefits as commercial lenders.
But on the plus side, credit union members are often able to get favorable interest rates, fee waivers, and financial assistance. They are also able to voice their concerns over their credit union’s policies and vote for more favorable practices. Unlike banking at a large commercial bank, credit union members are co-owners of their credit union and can shape it to benefit all members of their community.
Try Aspiration for environmentally-friendly financial services
Besides credit unions, sustainable neobanks like Aspiration put the interests of their customers and the planet above profits, by abstaining from investing in any fossil fuel companies or weapons manufacturers.
Instead, here at Aspiration we donate a percentage of our earnings to help everyday Americans start their own businesses.
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Visit our website today to learn more about green banking or to apply for the Aspiration Zero.