Credit unions tend to offer better rates on deposit accounts, lower rates on loans and credit cards, and lower fees in general than traditional banks. They're run by their members, they often have the same federal insurance protections as banks, and in many cases they offer a variety of perks and free educational resources.
Most people previously associated banks with trustworthiness, longevity, and stability in the financial world—at least until recently. With the shake-down of the financial markets and the collapse of many financial institutions, it's not unreasonable to question whether banks are the best way to store, transfer, and save money.
Key Takeaways
- Credit unions are community-based banking institutions that are owned, in part, by the union's depositors and customers.
- While similar to traditional banks in some ways, credit unions come with additional advantages that some may find attractive.
- A focus on the community, attractive rates, and added perks might lure you away from your bank and to your local credit union.
Credit Union Benefits Overview
Credit unions are free to make decisions to benefit their members rather than seeking to please stockholders, who may have different interests than members. As a result, credit unions can offer lower rates on loans, credit cards, and other products, higher savings rates, and lower fees. Members also commonly benefit from insurance on funds up to $250,000, financial education tools, and significant community involvement.
Browse our picks for the best credit unions to get an idea of the products and services offered compared to traditional banks.
You can only take advantage of a credit union's benefits if you're a member. To become a credit union member, you'll need to join based on location, occupation, association, or another factor. Not all people are eligible to join all credit unions, but some credit unions offer innovative ways to become a member, such as joining a nonprofit organization for a small fee.
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1. Better Rates on Savings Products
Credit unions strive to offer great rates on deposit accounts and often beat interest rates from banks. However, you should shop around for the best deposit accounts currently available to compare returns:
- Best high-yield savings account rates
- Best CD account rates
- Best money market account rates
2. Lower Rates on Borrowing Products
In general, credit unions charge lower interest rates than banks on a wide variety of products, including:
- Credit cards
- Fixed-rate mortgages
- Adjustable-rate mortgages
- Home equity loans and HELOCs
- Used car loans
- New car loans
- Personal loans
While you should always shop around and compare rates, starting your loan search at a local credit union may be a real benefit.
3. Lower Fees
Credit unions charge lower fees than other financial institutions, on average. These may include lower or nonexistent fees for account maintenance or fee refunds for banking activities such as out-of-network ATM withdrawals.
This doesn't mean you won't be charged fees for some services, however, such as wire transfers or overdrafts.
4. Member-Owned Financial Services
Credit unions often consider themselves "financial cooperatives" rather than financial institutions. So perhaps the most outstanding feature of credit unions compared to banks is that they are member-owned and member-run, with opportunities to vote for a volunteer board of directors elected by members. This board helps run the credit union.
5. Up to $250,000 Insured
Up to $250,000 of your funds at a federally-insured credit union are insured by the National Credit Union Share Insurance Fund, as managed by the National Credit Union Administration (NCUA). The $250,000 standard insurance amount is per owner, per insured credit union, for each account ownership category. That includes deposit accounts like checking, savings, CD, and money market accounts.
6. Perks and Free Education
Some credit unions offer products such as individual health insurance and financial advisory services. Most credit unions focus on community enrichment and financial education, with many offering free classes or other educational services to the community, including debt and budget counseling, in-school credit union branches, and first-time homebuyer programs.
Frequently Asked Questions (FAQs)
What Are the Main Benefits of a Credit Union vs. a Bank?
The main benefits of a credit union compared to a bank are that credit unions tend to offer better rates, better customer service, and lower fees. However, banks may offer more branches and products than credit unions.
What Is the Main Disadvantage of a Credit Union?
The main disadvantage of a credit union is not being able to join if you don't qualify for membership. You may also find fewer physical branches, services, and products available compared to a traditional bank.
Are Credit Unions Safer Than Banks During a Recession?
Credit unions may be safer than banks in an economic collapse or recession due to taking fewer large risks regarding consumer and commercial loans and investing. However, a credit union can fail. If a federally-insured credit union fails, up to $250,000 of your deposited funds are protected by NCUA insurance.
The Bottom Line
If you're frustrated with long lines and unresponsive customer service, a credit union might be the best place to put your money. It's tough to beat a friendly, community-focused financial institution offering lower fees and better interest rates. Compare the account types you need with those offered by traditional and online banks, and make sure the credit union you are considering offers the best terms for the service you need.
