Credit unions can be a good place for your money, especially for loans. Unlike banks, they are nonprofits owned by their members. This means they can be more flexible with interest rates.
However, credit unions might not be for everyone. Consider your priorities to determine if joining a credit union is right for you.
The Pros
Better Interest Rates on Loans
Credit unions usually offer better rates on savings accounts and lower rates on loans than banks. You can use these better rates to improve your finances.
For example, you might have high-interest loans and struggle to pay them each month. If so, joining a credit union and refinancing your loans could help.
High-level Customer Service
Credit unions value people over profits. Anyone who joins is a member, not just a customer. Members get great, personalized customer service. As a valued member, you can expect respect and care, no matter your financial situation.
Lower Fees
Credit unions don’t pay federal taxes, so they usually charge lower fees. They also have fewer fees than banks.
A Variety of Services
Before joining, check what services a credit union offers. Many offer similar services to banks. These include:
- Checking and savings accounts
- Credit cards
- Mortgage loans
- Vehicle loans
- Money transfers
- Online banking
- Financial literacy resources
If you want to build credit and save money, a credit union might be a good choice.
The Cons
Cross-collateralization
Credit unions have more freedom than banks to collect on unpaid loans. This is because of cross-collateralization.
Imagine you have a mortgage, credit card, and checking account at the same credit union. If you miss a credit card payment, the credit union could take money from your checking account. This could cause your mortgage check to bounce.
A bank must get a court order before taking money from your checking or savings account to cover a loan. This is true even if the account and loan are at the same bank.
You can avoid this by keeping your checking and savings accounts at a bank while keeping your credit card, auto loan, and mortgage at a credit union. This means your checking account won’t be cross-collateralized with your debts.
This will protect you from having money taken from your checking account to pay an auto loan or mortgage.
Fewer Branches, ATMs, and Services
Credit unions usually have fewer branches and ATMs than banks. However, some credit unions have joined networks of surcharge-free ATMs to help with this.
Also, some credit unions don’t offer as many services as banks. So, be sure to learn what they offer before opening an account or getting a loan.
Membership Is Sometimes Restricted
The biggest downside is that you sometimes must be part of a specific group to join a credit union. For example, a credit union might only allow people who work for a certain company to join. But many other credit unions let almost anyone join.
Is It Better to Belong to a Credit Union or a Bank?
When choosing, think about what is most important to you. If lower fees and better rates matter most, a credit union might be right for you. But a bank might be better if you want easier access to your money.
If you join a credit union, make sure your deposits are insured. The National Credit Union Administration insures accounts up to $250,000 for most credit unions, but some are not protected.
Frequently Asked Questions
A credit union is like a bank, but it’s owned by the people who use it, called members. It’s not run to make a profit for stockholders.
Banks are owned by stockholders who want to make money. Credit unions are owned by their members. Because of this, credit unions often have better interest rates and lower fees than banks.
Credit unions often have better interest rates on loans and savings accounts. They usually charge lower fees than banks. You can also expect very good customer service because credit unions value their members.
Credit unions may have fewer branches and ATMs compared to big banks. Also, some credit unions have rules about who can join. “Cross-collateralization” is another thing to know about.
This means if you have a loan and a checking or savings account at the same credit union, the credit union might take money from your account if you don’t pay back your loan. Banks usually can’t do this without going to court first.
Yes, most credit unions are insured by the government, just like banks. This means your money is usually safe up to $250,000. Look for the NCUA insurance logo to be sure.
If you want better interest rates, lower fees, and good customer service, a credit union might be a good choice. If having lots of branches and ATMs everywhere is most important to you, a big bank might be better.
