When you’re trying to open a new bank account, you have a wide variety of options to choose from. Many banks offer multiple version of the same type of account, but before you can even get that far, you have to choose a bank to work with.
Credit unions are another type of financial institution that offers deposit accounts. They are very similar to banks but vary in a few key ways.
How Does a Credit Union Work?
Credit unions look, feel, and work a lot like banks do. However, there are enough differences that you should take care to learn about. Consider these things before opening an account at a credit union.
Unlike banks, which can conduct business with anyone, credit unions can only be used by people who are members of the credit union.
Federal law prohibits credit unions from offering services to anyone. Credit unions must have requirements for membership, rather than handing it out to anyone and everyone.
Eligibility factors can vary greatly and they often include:
- Affiliation with certain organizations or associations
You may find that you are eligible for membership in a credit union sponsored by parish, synagogue, or school.
Don’t let the fact that there are eligibility requirements deter you. Most credit unions try to make it very easy to become eligible to be a member. University-based credit unions might be open to anyone who has taken just a single class at the school. Other credit unions, like Alliant, extend membership to anyone willing to make a $10 donation to charity. If you want to work with a credit union, you’re sure to find one that you are eligible for membership in.
Once you’ve become a member, you can open your first account. Usually, you just need to make an initial deposit of $5 to $25.
Eligibility Requirements of Top 15 Credit Unions
|Credit Union||City, State||Eligibility Requirements|
|Navy Federal Credit Union||Vienna, VA||• Active Duty members of the Army, Marine Corps, Navy, Air Force, and Coast Guard
• Army and Air National Guard
• Delayed Entry Program (DEP)
• DoD Officer Candidate/ROTC
• DoD Reservists
• Veterans, retirees and annuitants
• DoD civilian employees, U.S. Government employees assigned to DoD installations, DoD contractors assigned to U.S. Government installations, DoD civilian retirees and annuitants
• Immediate family members of current members
• Member of Select Employee Group (SEG)
|State Employees' Credit Union||Raleigh, NC||• Employees of the state of North Carolina
• Federal employees working in conjunction with state of North Carolina departments
• Employees of public boards of education
• Members of the North Carolina National Guard
• County employees of Social Services, Health, Mental Health and Civil Defense
• Employees of associations formed for the benefit of state of North Carolina employees
• Un-remarried spouses of individuals who died while eligible for membership
• Individuals retired from the above employment or service as pensioners and/or annuitants from the above employment or service
• Immediate family of a current member
•Individuals sharing a single economic unit with a current member
• Employees of agencies or departments whose employees are subject to the State Personnel Act
|Pentagon Federal Credit Union||Tyson's Corner, VA||• Currently serve in the United States military or Uniformed Services
• Currently an employee of the U.S. government
• Related to someone who is an employee of the U.S. government
• Are/become a member of a group like National Military Family Organization ($17 fee to join) or Voices for America’s Troops
|Boeing Employees' Credit Union||Tukwila, WA||• Live, work, worship or attend school in Washington state, or have a family member who does
• Live or work in the following Oregon counties: Benton, Clackamas, Columbia, Lane, Linn, Marion, Multnomah, Polk, Washington, and Yamhill
• Be a part of the Boeing Employees' Credit Union
• Be a part of the Boeing Company
• Be a part of any Credit Union
• Or have a family member of someone above
|SchoolsFirst Federal Credit Union||Santa Ana, CA||• Be a school employee or a retired school employee from an eligible school and are receiving a pension or annuity from that entity's retirement program
• Eligible school employees must be in one or more of the standard sectors
• Members of the Board of Trustees of eligible schools
• Are an immediate family member of a SchoolsFirst FCU Member
|The Golden 1 Credit Union||Sacramento, CA||• Live or work in one of the 38 California counties served by Golden 1
• Be a family member or registered domestic partner of a current Golden 1 member
• Belong to one of nearly 1,000 Select Employee Groups
• Must join the Financial Fitness Association
|First Tech Federal Credit Union||Mountain View, CA||• Work for a high tech or telecom sponsor company, for the State of Oregon, or in Lane County, Oregon
• Live in Lane County, Oregon
• Be an immediate family member of a First Tech member
• Be a member of the Computer History Museum (join on site - membership price varies)
• Be a member of the Financial Fitness Association (join on site - $8 membership/year)
|Alliant Credit Union||Chicago, IL||• Are a current or retired employee from one the many businesses and organizations Alliant partners with in the U.S
• Are an immediate family member or a domestic partner of a current Alliant member
• Have donated to Foster Care to Success ($10 donation fee)
• Live or work in one of the communities near our Corporate Headquarters in Chicago
|Security Service Federal Credit Union||San Antonio, TX||• Live, work, worship, attend school, or your business is located in select areas of Texas, Colorado, or Utah
• Be a member of select military branches/units or a Department of Defense employee at specific military bases within our service areas
• Are a family or household member of an existing member
• Are a volunteer in select areas of Texas, Colorado, or Utah
|Star One Credit Union||Sunnyvale, CA||• Live, work, or attend school in Santa Clara County, California
• Employees of corporate sponsors
• Retirees of Lockheed Martin
• Immediate family members of current Star One members
• Star One Credit Union employees
|America First Credit Union||Riverdale, UT||• Live, work, worship, volunteer, or attend school in select Utah counties
• Are owners, employees, or suppliers involved in the food industry, in Utah
• Are employees or members of a Select Employer Group (SEG) or of an affiliated association
• Are a member of the immediate family or household of an existing member or those eligible for membership
• Are the spouse of a person who died while within the field of membership
• Are an existing member of America First Federal Credit Union
• Are an employee of America First Federal Credit Union or its subsidiary corporations.
|Suncoast Federal Credit Union||Tampa, FL||• Immediate family members of current Suncoast members
• Alumni of Florida College
• Live in one of the 21 counties listed (Charlotte, Citrus, Collier, DeSoto, Dixie, Gilchrist, Glades, Hardee, Hendry, Hernando Highlands, Hillsborough, Lee, Levy, Manatee, Marion, Pasco, Pinellas, Polk, Sarasota)
|Randolph-Brooks Federal Credit Union||Live Oak, TX||There are more than 2,500 qualifying ways to become a member of Randolph-Brooks. The most common ones include:
• Your employer
• Your place of worship
• Your community organization
• Your neighborhood
• Your school
• You have immediate family members who are part of the credit union
|San Diego County Credit Union||San Diego, CA||• Anyone living or working in San Diego, Riverside and Orange counties
• Members of the Financial Fitness Association ($8 membership/year)
|Digital Credit Union||Marlborough, MA||• Relatives of DCU members are eligible to join by federal regulation
• Currently work for or retired from a company or organization in our FOM (Field Membership) - or you belong to an organization in our FOM
• You have a family relationship to a non-member who currently works for or retired from a company or organization in our field of membership
• You are the spouse of someone who died while they worked for or were retired from a company or organization in our field of membership
• You have a family relationship to a non-member who belongs to an organization in our list of participating organizations
• You are the spouse of someone who died while they belonged to an organization in our list of participating organizations
• You are automatically eligible to join DCU if you live, work, worship, or attend school in one of the communities in our list
Deposit Insurance from the NCUA
Banks are insured by the Federal Deposit Insurance Corporation. The FDIC promises to reimburse account holders at closed banks, up to a maximum of $250,000 per account type per person. This insurance means that you cannot lose the money you put in a bank account, so long as your stay below the insurance maximum.
Because credit unions are not technically banks, the FDIC does not cover their accounts. Instead, credit unions are protection by the National Credit Union Administration.
The NCUA is an independent federal agency tasked with regulating credit unions. One of the things it does is provide deposit insurance to consumers with accounts at credit unions. The rule and limits of NCUA protections mirror the protections offered by the FDIC. That means your money will be equally safe, no matter which type of institution you choose.
What makes credit unions truly unique is that they are owned by the people who deposit money at them. Banks are owned by shareholders who may or may not keep their money at the bank. In turn, the bank works for the shareholders, trying to generate profit to increase the value of the shareholders’ investments. That means that banks may act in ways that aren’t in the account holders’ interests, such as raising fees, to benefit shareholders.
At a credit union, when you open a savings or checking account you are purchasing a share in the credit union. In effect, you are one of the credit union’s owners. You, along with all of the other depositors, who are also owners of the credit union, elect a board of directors each year. The board of directors is tasked with running the credit union for the benefit of the shareholders, meaning you. Credit unions work on a not-for-profit model, so they always aim to work towards the benefit of account holders. Any extra revenue that the credit union receives is returned to you in higher interest payments on deposits, reduced fees, and lower rates on loans.
Usually, each person with an account gets one share, so each member of the credit union has an equal voice. It doesn’t matter whether you have $1 or $1 million in your account.
Pro vs. Cons of Credit Unions
The Biggest Benefits of Credit Unions
The unique structure of credit unions means that they bring a lot of benefits. Some examples of the biggest benefits are:
Shared branch/ATM networks
Credit unions tend to be small, operating just one, or a few branches. They can’t compete with national banks in terms of scale. They make up for this by joining national ATM networks and credit union alliances. These partnerships make it easy for you to do your banking from anywhere.
Say you have an account with credit union A, which is located in Massachusetts. You want to visit New Hampshire, and need to know where you can go to do your banking. Credit union A is part of the Allpoint ATM network, which operates thousands of ATMs across the U.S. Just find an Allpoint ATM wherever you are, and you can withdraw cash.
If you need to visit a physical branch of a credit union while you’re away from home, it might be difficult to do. For those situations, credit union A may partner with credit union B. You can visit a branch of credit union B and it will treat you like its own customer. You can make deposits or withdrawals on your account at credit union A from B’s branch.
The largest shared-branch network of credit unions is CO-OP. It has over 5,600 shared branches and 30,000 surcharge-free ATMs from more than 1,800 U.S. credit unions and major merchants such as 7-Eleven, Circle K, Costco, Publix, Dunkin Donuts, Rite-Aid, and more.
Bigger focus on personal service
Because credit unions are owned by the depositors, they have to work in the interest of the depositors. Also, remember that credit unions are based on local groups. These factors encourage credit unions to place a focus on personalized service.
At a large bank, you might never work with the same teller twice, and the people at the bank probably don’t know who you are. If you need to make a special request or need the bank to be flexible with regards to loan payments or approval, you’re unlikely to find help at a bank.
Credit unions get to know their customers. Over time, the people at your credit union will get to know you and you’ll get to know them. Because credit unions thrive when their communities thrive, they’ll be more willing to go out on a limb to help you. They can also provide more personalized advice since they’ll know about your unique personal situation.
Lower fees and higher interest rates
Credit unions tend to charge much lower fees and pay more interest than banks do. Banks are run with profit in mind, so every dollar they make from fees or refuse to pay as interest increases their profit. This, in turn, benefits the banks’ shareholders.
Credit unions are non-profit entities. They cannot work to earn a profit because they cannot keep the extra money. Anything extra has to be returned to the customers. The way credit unions return this excess is by charging fewer fees and paying more interest. This lets the credit union avoid having an excess at all and leaves more money in your pocket.
Wider range of financial products
Banks tend to offer the same standard financial products: checking accounts, savings accounts, CDs, etc. Credit unions can offer a wider variety of accounts in addition to the standard.
One example of an account a credit union may offer is a credit builder loan. Credit unions succeed when their customers succeed, so a credit union may be more willing to extend a risky loan to a customer. If the customer is able to pay it back, the customer’s credit rating will improve, benefiting their financial situation. That, in turn, benefits the credit union because the person will be able to make larger deposits which it can then use to finance other loans.
The Biggest Cons of Credit Unions
Despite their benefits, credit unions do have some downsides.
Eligibility rules are barriers
Though many credit unions make it easy to meet the membership requirements, not all of them do. You may find yourself in a situation where you’re not eligible for any of the credit unions you’d like to work with.
Branch hours may be less convenient
Another downside is that credit unions are often less conveniently located and do not stay open for as long as a chain bank might. That can make it difficult to conduct necessary business.
Slow on the tech front
Finally, credit unions tend to move slowly when it comes to adopting new technology. Major banks have significantly greater resources, so it’s easy for them to build an online banking suite or mobile app. Credit unions may have as few as a dozen employees, so it is harder for them to adapt to changes in technology.
Are Online Banks an Alternative?
Online banks offer many of the features of a credit union, like low fees and high rates. In fact, online banks don't have to pay the expenses of running branches like credit unions.
Therefore, their interest rates on savings accounts and CDs, for instance, are usually much higher.
Credit unions have a unique structure that brings a variety of benefits and drawbacks. If you like the idea of community-focused banking, a credit union might be the right choice for you.
Compared to online banks, they won't always provide the highest rates or the lowest fees because they most likely have to pay the costs of operating branches.