Due to bank scandals past and recent (most notably the Great Depression and more recently, the Great Recession), banking’s historically negative reputation continues to permeate today. As a result, a trend has developed in consumers hopping on the band wagon of switching the management of their finances over from banks to credit unions. If you’re contemplating joining them, here’s what you should know.
Banks and credit unions
Credit unions and banks both offer the same products and services — checking and savings accounts, specialized accounts, financial products like CDs, and a wide range of financial services. The National Credit Union Administration also insures deposits at each institution up to $250,000 per account. However, those are where the similarities end — the business models for a bank and credit union are very different, and this difference impacts what their goals are, and what they are able to offer their consumers.
Banks are a for-profit business. While banks recognize that offering customers satisfactory service is integral to business, it remains in the best interest of banks to generate revenue through customers’ transactions. For instance, when you make a deposit or buy a savings product, you are really allowing the bank your money to use as a loan, which they lend to other customers, and invest in other endeavors. In exchange, you receive interest on it.
Another example are fees, which can range anywhere from reasonable to exorbitant in cost. These are just two common examples of how the bank operates with help from their customers.
Since it is the goal of customers to get the best possible interest rates on their money, as well as the lowest fees, it can be frustrating knowing that bank executives and investors are factoring profit into the equation. According to MyBankTracker’s reviews from various bank customers, the most common complaints concern high fees, poor service, and an inability to resolve mistakes quickly. The best banks are able to strike a balance between quality customer care and revenue.
Credit unions on the other hand, are not run for profit, and membership is restricted to a certain group, such as a particular industry, region, or other category. Customers also aren’t customers — they’re part owners, and their account is referred to as a “share.” This is because there aren’t any investors, directors, or corporate interest dictating the decisions of the credit union. Members are involved in each change made, and the executives and directors are elected through voting.
Money that is made is given back to members through a variety of ways, such as better rates on interest loans and savings, lower fees, and more. At the end of each year, remaining revenues are distributed to members.
What are credit union drawbacks?
Big banks are able to offer their customers convenience through mobile banking and technological advances. Since credit unions are usually local and small, it can be more difficult to withdraw money without physically visiting a branch. If you’d like to withdraw money while traveling, doing so can be costly, and even using local ATMs incurs fees that quickly add up.
However, as one reader points out from personal experience, there are many small, local credit unions that do offer mobile banking as a standard feature, so in order to select a technologically savvy credit union to switch to, ask directly to determine what features credit unions near you do and don’t offer. That aside, it’s widely known that most credit unions charge lower fees than many popular banks, but less widely known is that credit unions can also charge other types of fees that banks normally do not, so keep this in mind while searching.
Credit unions emphasize inclusion and community, and since their customers are considered to be members, it isn’t difficult to deduce that you need to have all the boxes checked in order to be eligible to participate in a credit union near you. However, finding one you qualify for isn’t difficult.
Most people join credit unions through their employer, but other categories of membership include church, school, one’s community, the military, and employee group. To find a credit union, you can call your state league or talk to your employer, and encourage your family members to turn to their employers and affiliations as well. Twenty-five percent of credit unions are community based, and you can always do a search online.
One of the biggest myths about credit unions is that they’re difficult to join. However, finding an eligible credit union isn’t hard, and with new technology and businesses, such as CreditUnionLookup.com, intended to help consumers learn more about them, you can be on your way to transferring your finances and joining a member-minded financial institution in a short matter of time.
The Benefits of Joining a Credit Union
Katherine covers the issues that are most relevant to younger adults, including topics such as college finances, student debt, and consumer spending. She has contributed to other web publications such as Business Insider and Investopedia.