It’s no secret, Americans are big into ownership. Most people agree it’s better to own a home than rent—and that’s what makes credit unions special: A sense of ownership. When you join a credit union, you’re a co-owner of the institution, not simply a user. Plus, credit unions are not-for-profit companies that are focused on serving their members’ needs—meaning you can get higher yields on deposit products and lower interest rates on loans.
“Credit unions give consumers a clear choice to support their local community,” says Brian Lee, President and CEO of Landings Credit Union in Arizona. “When members deposit their money in their local credit unions, those funds are invested right back into the local economy. From lending to local small businesses to supporting community non-profits, credit unions help to create a better community.”
What makes a credit union different from a bank?
Just like a traditional bank, a credit union provides deposit accounts and lending products, plus other services such as insurance, financial planning, and business accounts. The big difference is who owns the company: Credit unions are owned by members, while banks are typically owned by corporations or shareholders. Credit unions are not-for-profit, while banks are for-profit. Because of this, banks typically offer lower returns on savings accounts and charge higher rates for lending products.
Ezra Eckhardt, President and CEO of STCU in Washington, notes that any credit union you join will likely have the same financial tools as a bank. “In addition to offering state-of-the-art online banking and mobile apps, nearly 2,000 credit unions are members of a nationwide network of ATMs. The network means members of those ‘local’ credit unions can make surcharge-free transactions across America—better, even, than if they banked at Chase, Wells Fargo, or Bank of America,” said Eckhardt
Both credit unions and banks are federally insured, making them both safe bets to protect your deposits. Credit unions are insured by the National Credit Union Administration (NCUA), whereas banks are covered by the Federal Deposit Insurance Corp. (FDIC). In both cases, the coverage is up to $250,000 per depositor, per institution.
The benefits of using a credit union instead of a bank
Credit unions typically offer better interest rates on their products to members compared to traditional banks. Plus, products are likely to be more geared toward community members, and members can have a say in what they’d like to see. Additionally, members are likely going to get more personalized customer service.
“The not-for-profit business model ensures decisions prioritize our members over profits,” states Mollie Bell, Chief Development Officer of Ent Credit Union in Colorado. “Credit unions also emphasize local and personalized service and focus on community impact and financial wellness. Typically, credit union members experience lower fees, better loan rates, and higher savings rates compared to banks.”
Pete Amstutz, Senior Vice President of Savings and Membership at Navy Federal Credit Union, agrees: “Being closely aligned with our members’ values allows us to be their financial partners—providing the insights, services, and products they need. Another advantage is any surplus of funds is returned to our members as dividends, lower rates and fees on lending products, exclusive discounts, and improvements to our services. In fact, our members earn and save an average of $461 per year by banking with us.”
Some potential downsides to using a credit union
While they come with their share of perks, credit unions may not be the best choice for everyone. First off, you might not meet membership requirements. Many credit unions limit membership to specific regions or classes of people, like veterans or employees of a public university and their family members. Additionally, if you move or travel frequently, a local credit union may not be able to provide you with in-person services when you need them.
However, just as having accounts at more than one bank is not an issue, there is no reason you can’t have accounts at both banks and credit unions. This is especially true if you have more than $250,000 in deposits and you want to make sure all your funds are insured.
Credit unions often provide better rates on savings and lending products, while banks can provide you with more branch locations to conduct business on the go. This makes having different accounts in both banks and credit unions make sense.
What to look for in a credit union
With thousands of credit unions available across the US, you’re bound to be eligible for membership at multiple credit unions, so how do you decide what to prioritize? The key things to watch out for include making sure any credit union you’re interested in banking with offers all the services you’re looking for—beyond deposit accounts, are you interested in credit cards, loan products, or insurance? Additionally, shop around for the best rates, as some credit unions may put more emphasis on savings APYs, while others may prioritize lower interest rates on loans.
Check the credit union’s website for its branch and ATM locations. Most credit unions offer access to a larger ATM network, allowing free transactions when you are away from your credit union. Some also offer to refund ATM fees for out-of-network transactions. Besides ATM fees, make sure you know the fees and minimum requirements associated with the accounts: Many credit unions offer fee-free deposit products, while some may require a minimum deposit requirement or other factors in order to waive fees.
Troy Stang, President and CEO of GoWest Credit Union Association, recommends talking to others who have used a credit union you’re interested in joining: “Credit unions have an incredible reputation for customer service and financial stability. Many credit unions have strong ties to their local communities, so ask around or read reviews to get a sense of how they support their members.”
What do you need to join a credit union?
The requirements to join a credit union vary between each one. However, there are some common requirements to expect before your membership is approved.
- Geographic requirement: You may need to live, work, worship, or attend school in a certain area to qualify for membership.
- Employment requirement: Working for certain companies may provide you with automatic membership with a credit union.
- Additional organization membership: For those who don’t meet geographic or employment requirements, many credit unions allow you to join if you also join another non-profit organization.
- Membership fee: Some credit unions only require a membership fee. Others may require a fee in addition to meeting a geographic or employment requirement.
If you are eligible for membership, you can join by either filling out an online form on the credit union’s website or stopping into a branch and filling out a membership form. You may need to open a deposit account when you apply for membership.
Alternatives to credit unions
If you cannot qualify to open an account at a credit union or you’re looking for an alternative, there are several options to consider. This could include a large, traditional bank, such as Chase or Bank of America, where you’ll likely find easy branch and ATM access but less desirable rates.
For people who don’t prioritize in-person services, online banks could be a great choice—with less overhead cost, online banks often offer accounts with higher yields and fewer fees than traditional banks. Lastly, a small community bank could provide you with customized in-person services, similar to a local credit union.
The takeaway
A credit union typically offers higher interest yield on deposit accounts and lower interest rates on lending accounts. However, you should always shop around to make sure you are getting the best rates, and your local credit union may or may not be better than your local bank.
