There are a wide variety of benefits to joining a credit union, ranging from the financial perks to the friendly atmosphere. These organizations function like banks and offer most of the same services, but, as a general rule, they tend to be warmer and homier. If you want to feel like family when opening and using accounts or discussing your monetary hopes and problems, a credit union has a warm hearth waiting for you.
But just what is a credit union? It's essentially a nonprofit member-owned version of a bank. Once you become a member, you can open savings and checking accounts and obtain loans and credit cards. Most offer some level of investment services as well. Yet rather than making money by charging customers interest and fees and then reinvesting it all for the business's profit, credit unions return their profits to their members in the form of lower-rate loans and higher-rate savings accounts.
Benefits of a Credit Union
Credit unions are founded on the philosophy of people helping people, says Stephen Lark, vice president of marketing and corporate development for Communication Federal Credit Union, located in Oklahoma City, Oklahoma. "We look at fee structure and locations to make sure [they] benefit the greater good," he says. In fact, when you join a credit union, you become an owner, and that status translates into certain privileges:
- Lower rates on loans and credit cards. Credit unions offer some of the best rates on credit products such as car loans, mortgages and credit cards. They provide fee-free checking accounts and savings accounts, too, without requiring a substantial minimum balance. That can be a huge relief when your funds dip into the single digits.
- More forgiving qualification standards. If you don't have a credit history or do but it's damaged, you could have serious trouble scoring a credit card or loan with a low rate from a bank. Credit unions are more forgiving of people in this position. "When a member applies, we run their credit to see who they owe and how much, and check to see if they've paid their bills on time," says Angie Coleman, chief marketing officer for Jax Federal Credit Union, which serves the Northeast Florida community. "If they're having problems, we don't just say no—we work with the member so they will qualify."
- A powerful presence in the community. If you love where you live and the people in your profession, joining a credit union can be a wonderful way to take part in their betterment. The credit union might award grants and scholarships to worthy local students, such as Alliant Credit Union in Chicago, or sponsor local fundraisers, as First Financial Credit Union in California does. The programs differ by location and need, but credit unions are generally committed to being a positive force in the community.
- Higher rates on savings accounts. Credit unions tend to offer higher interest rates on savings and deposit accounts than banks do. Massachusetts-based Digital Credit Union, for instance, currently offers members an impressive annual yield of 6.7%on the first $1,000 in their primary savings account. And these accounts are as secure as those provided by commercial banks, since they are also insured.
- Personalized credit assistance. If your credit rating is poor, you can turn to your credit union for help. "We have at least one certified credit counselor who can sit down with people," says Lark. "We give members a credit score for free and then walk them through the numbers. We look at their entire picture and explain how to increase their scores, get out of debt, discuss their best products and services, and cover their long-term goals and short-term issues."
- Other education. Part of the mission and purpose of a credit union is to educate their members about the wide span of money and credit matters. They often staff financial advisors to give advice and host free financial workshops. Some credit unions go beyond economics, such as Communication Federal Credit Union, which puts on women's defense classes.
What to Consider Before Joining a Credit Union
Of course credit unions aren't for everyone, and there are some disadvantages to be aware of before abandoning your big bank. Credit unions may have:
- Limited locations. Smaller credit unions may only have one or two brick-and-mortar branches. If you're far away and want to go in to conduct in-person business matters, you could be out of luck.
- Fewer ATMs. Credit unions may only have ATMs attached to their branches. You can use other financial institutions' ATMs to withdraw and deposit funds and the credit union will probably pick up the tab for any associated fees, but there can be exceptions to this rule.
- Lackluster technology. If you're accustomed to the ultra professional websites and online systems that commercial banks have, you could be disappointed by the difference. At best, some smaller credit unions' technology can be described as quaint; at worst, it can be frustrating.
- Pared-down plastic options. Want to have all of your accounts in one place, including credit cards? Most credit unions offer them, but there may not be a variety of credit cards from which to choose. Those with huge sign-up bonuses and other specialized rewards programs probably won't be part of the lineup.
- Exclusive membership. Credit unions often cater to a specific community or profession. For example, San Francisco Federal Credit Union is open to people who live, worship or work in the area. To become a member of State Employees' Credit Union, you'll need to be an employee of the state of North Carolina.
Still, credit unions may be worth considering if you're unhappy with your bank or are looking for a more community-focused atmosphere. If you think a credit union might be a good option for you, but you're not sure if you're eligible for any in your community, don't give up. "There are a lot of misconceptions about credit unions," Coleman says. "People automatically think they can't join because of the name or worry that it's some sort of club. That's not true at all. You can find a credit union that's right for you. Check out what's in your area, then walk in the door and talk with someone." If you do, chances are a friendly representative will welcome you—and may draw you in as a new member of the family.
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