The Benefits and Drawbacks of Credit Unions
It's difficult not to be annoyed by traditional banks. Many financial institutions just don't have incentives to provide better and less expensive services. Although some have begun to adapt to changing needs and desires in the industry, most brick-and-mortar banks still don't feel threatened. Because banks aren't meeting the needs of some consumers, more people are turning to credit unions as an alternative. (See also: Beating Bank Fee Increases)
A good friend of mine, a business owner, shared with me his concern about his finances. Thanks to his success, he has cash that he wants to be available for his business's leaner times, and he was unsatisfied with the savings rates he could find — even with high-yield online savings accounts. We were able to find a credit union that not only offered better interest rates for savings, but allowed him to qualify for a business line of credit at a low interest rate.
These pricing benefits are just some of the advantages of working with a credit union. Any type of banking institution has benefits and drawbacks. Here are the issues that you need to consider before ditching your current national bank and joining a credit union.
Advantages of Credit Unions
Customers are owners.
The executive management of any company must answer to its owners. With a publicly-traded banking institution, shareholders care about only one thing: making money. In these companies, management often makes decisions that benefit the shareholder but inconvenience the customer. Shareholders might be happy when a bank decides to charge a new fee to increase revenue (and as a result, the stock price), but those who use the bank's services do not want additional fees.
With credit unions, the set of owners and the set of customers are one and the same. All decisions should benefit everyone.
Credit unions are non-profit.
Non-profit status means that more of the profits are shared with the owners/customers. That doesn't mean that the institutions can't earn a profit; any business needs to earn money to survive. The difference is that there isn't a pressure to find ways to make money off the customers. Additionally, credit unions benefit from exemption from federal tax, and that saved expense help more of the unions' revenue to be put to work.
There are fewer fees and higher savings rates.
As a result of the advantage listed so far, credit unions typically offer free accounts with no minimum balance requirements. Fees are generally absent from credit unions. Interest rates on savings, certificates of deposit, and some checking accounts often significantly exceed those offered by banks. In the same respect, interest charged for loans and credit are often lower. In fact, some credit unions are regulated such that the interest rate on loans and credit cards must not exceed a certain rate.
Disadvantages of Credit Unions
Access to new technology is limited.
There certainly are drawbacks to being a non-profit. Credit unions often do not have the funds to invest in technology. As a result, some credit unions' websites appear as if they belong in a bygone era. I've come across a few credit unions that still do not have a website that allows online account access. The level of technology varies greatly from one credit union to another, and some credit unions do have full-featured web-based technology, but it's worth auditioning a website before committing to a new credit union if accessibility is important to you.
They have fewer ATMs.
With a national bank, I know that I could travel anywhere in the country, and perhaps internationally, and find ATMs from my bank to avoid unnecessary fees. Credit unions are often community-based groups with no capital to install ATMs in convenient locations. Credit unions often get around this limitation by allowing you to use an existing network of ATMs, and if that ATM's owner charges you a fee for its use, the union will refund that fee on your statement. Be sure to read the fine print of your agreement to determine whether you will be able to find free ATMs near you.
Membership is restricted.
Credit unions are often focused on a certain community — most often either a geographic location or a profession. This has created the impression that it can be difficult to find a union for which you qualify. You might find that you're not eligible for the credit union that looks most appealing to you, but just about everyone can find a credit union to join. For example, Pentagon Federal Credit Union is generally only available to those who are U.S. government employees and a few other select groups, but anyone else can also qualify with a $15 donation to an organization.
Your deposits at credit unions are insured, just like your deposits at banks. The FDIC is the government organization that ensures that your bank balances are safe, even if the institution fails, up to a certain amount. Credit union balances are protected by the National Credit Union Association (NCUA), another government entity, for the same amounts. Always check to ensure your credit union is legitimate by verifying coverage through the NCUA website.
Like banks, credit unions often offer a full suite of financial products, such as credit cards, mortgages, debit cards, business loans, and checking accounts. Their non-profit status means that most do not have the funds available for major marketing and advertising campaigns, so it's difficult for the public to get the information needed to make an informed choice between banks and credit unions. It may require some research, but it is worth the potential savings and service. You can get started with the Find a Credit Union portal.