Five Reasons to Quit Your Bank and Join a Credit Union
When you think about money—saving it, paying bills, earning interest on it—you probably think about a bank. Or perhaps Scrooge McDuck is swimming in a pool filled with gold coins , but probably in a jar. After all, the average person in this country has more than five bank accounts, even though banks aren’t always the best or most convenient places to store cash. Banks are the default place to keep your money, so you can earn a (disappointingly small) amount of interest, have a place to deposit your paychecks and pay your bills.
But this is not the only choice for these services. If you’re looking for a place to stash your savings and carry out routine financial transactions, you should consider credit unions . Although the number of credit unions has declined over the years (there are currently about 4,600 insured credit unions nationwide), their membership has grown steadily, with nearly 140 million members as of last year.
There are some very good reasons why more and more people are joining credit unions—reasons you should consider too.
The main differences between a credit union and a bank
At first glance, credit unions look just like banks. They both offer many of the same services, including checking and savings accounts, loans and other financial products. The fundamental difference between a bank and a credit union is the profit motive: banks operate on a for-profit basis, while credit unions operate on a non-profit basis. In other words, the bank takes your money, invests it, and pays you criminally tiny interest for the privilege. The credit union reinvests any profits into its members and community .
Another difference is who uses them. Banks are open to everyone, although under certain circumstances they may close an account or refuse to open one. Credit unions are governed on a membership basis, and there is usually a requirement that such membership meet standards set by the National Credit Union Administration (NCUA), whether it be a specific profession, a local group such as a church or school, or residence in a specific community. Like banks, credit union funds are federally insured up to $250,000, but the insurance is administered by the NCUA rather than the Federal Deposit Insurance Corporation (FDIC).
In practice, credit unions operate very similarly to banks. But their non-profit and community focus provides several key benefits that make joining them a very good idea.
Benefits of joining a credit union
Credit unions have a number of advantages over banks:
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Higher savings rates. Because credit unions use their profits to benefit their members, they almost always offer significantly higher rates on savings accounts, certificates of deposit (CDs) and other financial products (with a few exceptions).
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Reduced loan rates. Credit unions also tend to offer better terms on loans and mortgages, including 15- and 30-year fixed-rate mortgages. Their used car loans are significantly better: The average interest rate on a 48-month used car loan at a credit union is about 1.5 points higher than at a bank.
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Fewer fees and lower minimum amounts. Credit unions typically offer smaller and lower fees than banks. For example, checking accounts at credit unions can be 79% cheaper than national banks and 54% cheaper than even small community banks.
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Community and voice. The most important aspect of a credit union is that you become a co-owner when you join. This gives you a say and say in selecting board members, setting policies, and influencing where the credit union invests its funds. This also means that credit unions tend to be much more community-oriented than banks and are more willing to make loans to small businesses that banks may deem too risky or offering too low a return.
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Flexibility. Since you are a member (and co-owner) of a credit union, it is often much easier to qualify for a loan or negotiate special financing arrangements than through a bank. This doesn’t mean there are no requirements or that the credit union is just handing out money, but they are often more willing to work with their members despite low credit scores or other problems that banks won’t address.
Disadvantages to watch out for
One disadvantage of a credit union to consider is the ATM network: some credit unions do not have much coverage in terms of ATM access. Many are members of third-party ATM networks such as Allpoint or MoneyPass, which may extend their coverage, so it’s worth checking if you use your ATM card frequently.
While credit unions offer many benefits, there are circumstances where banks will, of course, be your best option. Banks tend to offer more services. And since credit unions have membership requirements, you may not be able to find one that you can easily join. Larger banks also offer national (and possibly international) coverage, as well as more reliable and secure online tools than some credit unions. But if you’re looking for a locally-focused banking experience that gives you a voice, a local credit union ( here’s how to start looking for one ) can’t be beat in terms of local focus, cost and involvement.