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If you’re looking for ways to save, one of the things you might be reevaluating is your financial institution. While most people automatically sign up with one of the big banks, that isn’t your only option anymore. And as people start to realize how easy it can be to switch financial institutions, more and more are leaving their traditional bank.
The reason for this mass migration is mostly bank fees. The average American household spends $290 annually on bank fees. People who are sick of bank fees and looking for the flexibility the big banks simply don’t offer have started to look toward credit unions instead.
Find out everything you need to know about credit unions, including the benefits of banking with one, so you can decide if you should switch to a credit union.
What is a credit union?
A credit union is a type of financial institution that’s owned and governed by its members. Essentially, a credit union is like the nonprofit version of a traditional bank. A typical bank makes its money by charging its members high interest rates and bank fees and keeping the profit for the company.
In comparison, a credit union always looks to reinvest its profits back into its members. It does so by offering low interest rates, fewer bank fees and higher-interest savings accounts. As credit unions are not-for-profit financial institutions, all their actions are in the members’ best interests.
Most credit unions offer—at the very minimum—savings accounts, checking accounts, lines of credit, loans, mortgages and credit cards. Some credit unions have expanded into offering investment services as well.
What are the benefits of using a credit union?
As member-first and nonprofit institutions, credit unions don’t have to make decisions to appease shareholders. This helps credit unions operate in a way that has many benefits to their members. Here are some of the benefits of credit unions.
A focus on local community
If you’re an active member of your local community, you may want to consider joining a credit union. Credit unions are often incredibly intertwined with their local communities as they typically have smaller, regional presences. These institutions often give back in the form of scholarships, donations and events. A credit union is a nonprofit, so it looks for ways to make a positive difference.
And because these institutions are all about being member-first, they often let their members have a say in the type of philanthropy they do every year. You can join a credit union and feel great that you’re supporting an organization that wants to make a difference for you and your neighbors.
Loans for those with bad credit
Unlike traditional banks, credit unions typically have less restrictive loan approval requirements. Generally speaking, individuals with no credit or poor credit are encouraged to go to a credit union for a loan. While a big bank will see bad credit and sometimes respond with an automatic denial, the same isn’t true for credit unions. A credit union will often do a deeper investigation into your current state of financial affairs. If the credit union can see that, despite the bad credit, you’ve been financially responsible for a while now, they’ll be more likely to consider your application.
Credit unions often have programs meant to help those with nonexistent or poor credit. “Credit builder loans” are given out to qualifying members as a way for them to build their credit back up responsibly. This is an excellent option for individuals who have poor credit or are currently going through credit repair.
Lower fees and loan rates
If you compare any credit union’s fees and loan rates, you’re basically guaranteed to find them better than what’s offered at traditional banks. Additionally, credit unions typically offer higher interest rates for saving accounts as well. For example, while the national average for a savings account interest rate is 0.06 percent, most credit unions are offering 0.5 percent right now. Lastly, credit unions often have no minimum requirements for account balances and even provide free savings and checking accounts.
This is all able to happen because a credit union is a nonprofit. The organization doesn’t have to report to shareholders who only want to see profits rise and rise. So credit unions take their earnings and put them back into their business to keep fees and loan rates low.
More personalized customer service
If you’ve ever tried to file a complaint or get something resolved at your traditional bank, you can vouch for how hard it can sometimes be to get good customer service. At this point, the big banks are just that—big. This means they don’t care as much when a single customer leaves and usually won’t go out of their way to ensure you’re happy.
The opposite is true for credit unions. These institutions are smaller and typically work hard to keep all members. They also prioritize customer service and listen to customer complaints, and managers often have the authority to make decisions that can actually help customers.
In fact, credit unions go above and beyond to help their members get set up for financial success. Many of these institutions offer free classes on financial education and credit repair.
Member voting rights
Each person who signs up with a credit union becomes a member and has member voting rights. This means you can actually have a say in how your financial institution operates and what it prioritizes. As a voter, you have a say in actions like who becomes a board member, what philanthropy the credit union does this year and more.
Potential drawbacks of credit unions
Of course, we have to mention some of the drawbacks of credit unions as well. As is the case with most things, there are some cons that may make you reconsider joining a credit union. The main downsides are:
- Specific rules for membership: To have any account, loan or credit card through a credit union, you must first become a member. The particular rules of membership differ for each credit union. The credit union often asks that you deposit between $5 and $15 into a savings account to activate membership status.
- Limited locations and ATMs: Most credit unions are very local and regional, which means they have a smaller footprint. This means that if you’re in a nearby city, you might not be able to find a location. Or, if you need to move to another state, you might need to cancel your accounts. Lastly, credit unions also tend to have fewer ATM locations compared to banks. So you might find yourself having to pay ATM fees on occasion when you’re forced to use a machine not associated with your credit union.
- Fewer credit card options: Generally, credit unions only have a handful of credit card options for their members. So if you’re interested in a particular card, you might not be able to get it through your credit union. Most credit unions don’t offer premium cards as credit union members tend to use the more standard, low-annual-fee cards.
- Behind in tech: Credit unions are operating at smaller capacities and budgets than traditional banks. Unfortunately, one of the areas where this lower budget is seen the most is with technology. Most credit unions are slow to catch up to the big banks with finance tech services. A credit union may not offer a banking app, a quick and user-friendly website or features like check deposit by picture.
Check out credit unions in your area
If you think a credit union might be right for you, the next step is to shop around. Compare a few of your local credit unions to see what kinds of rates and fees they have, what they offer and how easy they make transferring over your accounts.
Ultimately, only you can know and decide what’s best for you and your situation. If you have a bad credit score or are on a budget, you might be able to get more from a credit union. However, if accessibility and online/app banking are important to you, a credit union might fall short.
Credit unions can help you with your credit in some ways. They can give you opportunities to take out credit so you can rebuild a good credit history. Or, they may host occasional free classes that teach you financial fundamentals.
However, if you need help repairing your credit, there are other resources out there too. Lexington Law Firm can help consumers with inaccurate or unfair negative items on their credit reports. Our consultants help with credit report analysis, inaccurate item disputing and credit score analysis and monitoring. You don’t have to fix your credit on your own—get help today.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
