A credit union is a non-profit institution which is member-owned, whereby those who are part of the union can borrow money from it and share the profits. Typically, credit unions have better rates when it comes to savings, fees and loans, and as a consequence there are over 6000 credit unions currently active across the United States. It is reported that there are roughly 104 million members across all states, meaning that nearly half of the population who are economically active use credit unions.
What Is The Difference Between a Bank and a Credit Union?
The difference between a bank and a credit union is that banks are privately owned or publicly traded, whereas credit unions are non-profit institutions. Banks typically offer higher interest rates on savings and lower interest rates on loans due to the fact they prioritise the shareholder in place of the customer.
On the other hand, credit unions prioritise the members. Once you have deposited funds into a credit union, you become a member and simultaneously an owner. When you deposit funds into the union itself, the funds become available to be loaned to other members, providing them with better rates on their borrowed money.
Credit unions, unlike banks, aim to serve all members well. All money which is deposited into the union is utilised to benefit other members as opposed to making profits. As a consequence of this, credit unions have lower fees and also interest rates alongside improved rates on saving products.
Is It Cheaper to Borrow From a Credit Union?
Usually it is cheaper to borrow from a credit union due to less fees being involved in the lending process. Borrowers are paying in to become a member of the union and as a consequence they are also becoming owners. This massively differs from banks, where the shareholders are aiming to make a profit and charging higher interest rates and offering lower interest on accounts as a consequence.
Can Anyone Become Part of a Credit Union?
Anyone can become part of a credit union if they meet the specific requirements. In order to become part of a credit union, you must meet particular criteria such as being part of a specific group, living in a specific location, having family members who are already part of the union or having a specific employer.
Alternatively to this, it is possible to become a member of a credit union without meeting this criteria, by paying a small fee. People often pay the fee as opposed to taking a loan from a bank due to credit unions having many advantages.
What Are The Advantages of a Credit Union?
The main advantages of credit unions include higher interest rates, a more personalized experience and low fees. Traditionally, banks offer lower interest rates on both savings and checking accounts than credit unions do. Credit unions also offer lower interest rates when it comes to mortgages, payday loans and personal loans. They do this by ensuring that you are only paying for the loan itself as opposed to allowing the shareholders to make profit.
Credit unions also offer a more personalised experience than banks do which is another important benefit of becoming a member. All owners within the credit union contribute to the decision making process, allowing all members to have a direct influence. This is not the case with banks, where key decisions are made by people who have no direct connection to the borrowers.
In addition to this, credit unions are not looking to make profit from the members so the fees are not usually incurred to the same extent.
Are There Disadvantages to Being Part of a Credit Union?
Disadvantages of credit unions include lack of accessibility and possible lack of services available. You must be a member of a credit union in order to access or deposit any funds, and there is a strict application process. If you cannot meet the specific requirements and are not willing to pay a fee, it will not be possible to become part of the credit union.
In addition, credit unions are not available in all locations. Usually they are only located within communities that the credit union serves, making it more difficult to speak to someone in-person.
Credit unions also cannot always guarantee the same level of services that banks offer because they only have a limited number of staff and different technology.
Daniel Tannenbaum has worked in the payday loan and consumer credit space for over 15 years across the USA. His posts share useful insights into the financial world, money advice and opinions.