In my post about the advantages and disadvantages of moving your money to a small community bank, I didn’t address credit unions, which are also an alternative to the big banks. Credit unions and banks will feel similar to the average customer, but they are actually quite different, so here’s what you need to know.
How Do Credit Unions Work?
A credit union is a non-profit financial institution. Rather than customers, they have members. The credit union is owned by its members, who elect the union’s Board of Directors. These Directors then oversee the bank for the good of the members.
Since credit unions don’t operate for profit, they typically offer very competitive interest rates – often better than you’ll get from a bank. Any proceeds they receive from these loans are used to pay above-average interest on deposits and make additional loans. Credit unions also offer lower, if any, service fees and may pay a dividend to members if there is excess revenue.
Are Credit Unions Insured?
Accounts held in credit unions are not FDIC-insured. Instead, they’re insured by the National Credit Union Share Insurance Fund, which is backed the by the US government. The unions are chartered and regulated by the National Credit Union Administration.
What Services Are Offered by Credit Unions?
Different credit unions offer different types of services, but most provide at least savings and checking accounts. Many also offer auto loans and mortgages. Some offer money market savings accounts, certificate of deposit accounts, and credit cards. Larger credit unions may also provide investment services and insurance. Many offer discounts on local attractions, Entertainment Books, and other items.
Do Credit Unions Have ATMs?
Your specific credit union most likely has ATMs outside its branches that you can use free-of-charge. Many credit unions are also members of the CO-OP Network, which gives you free access to 28,000 ATMs around the country. Make sure you ask if a prospective credit union is a member of the network before you join.
Do Credit Unions Offer Online Banking?
Again, it depends on the credit union. Smaller credit unions may not have the infrastructure necessary for online bill-paying, but will allow you to check balances online. If online banking is important to you, make sure a prospective credit union has it before joining.
Who Is Eligible to Join Credit Unions?
Credit union eligibility depends on the specific credit union. Some are limited to a specific trade group or organization. For example, the Aerospace Credit Union is limited to employees of the Aerospace Corporation, US Government employees who work at the LA Air Force Base, and employees of contractors who work at the base.
Other credit unions are open to anyone who lives in a certain area. For example, the WesCom credit union is open to anyone who lives, works, worships or attends school in one of five Southern California counties.
No matter where you live, you should be able to find a credit union that you’re eligible to join. Visit the National Credit Union Association website to find one.
Personally, I used a credit union for a car loan twelve years ago. I joined a trade credit union with a $50 deposit into a savings account. I then contacted a loan rep who helped me apply for a car loan. The rate was reasonable, and certainly better than anything I would have qualified for at a bank or dealership. The whole process required two trips to the credit union – one to open the account and one to sign the loan papers. These days I’d probably be able to do it all online and by fax, just like a regular bank.