With Bank of America in the news for its new debit card fee, and other big banks adding fees left and right, and with free checking beginning to disappear from major financial institutions, consumers are looking for other options. Credit unions are once again receiving attention as those disgruntled with big banks turn to smaller, community financial institutions. But what are credit unions and why re they good for you?
What is a Credit Union?
First of all, it helps to understand what a credit union is. Basically, a credit union is a financial institution set up to serve those with specific characteristics in common. This commonality might be a workplace, a profession, membership in a specific organization or society, a geographic area, or attendance at a university. Credit unions are thought to have originated in Europe during the mid-1800s. They were created by smaller farmers and tradesmen who didn’t have the capital requirements to engage in business with the bigger banks, and who couldn’t get loans. By banding together, they were able to create their own associations to get access to various financial services.
The idea spread to the United States, and today credit unions are fairly common. Credit unions have non-profit status, since they are supposed to serve members, and they shouldn’t be working toward profits as banks do. The tax advantage associated with being a non-profit means that many credit unions offer lower interest rates on loans, and higher rates on savings products.
How Can a Credit Union Benefit You?
When you think of financial institutions, it might be worth it to consider credit unions. Many credit unions have widened their membership requirements to include more people; this is especially true of credit unions that are interested in growing membership using the Internet. Chances are that you qualify for membership in at least one credit union. With credit unions, you are likely to see some of the following benefits:
- Free checking, without minimum balance requirements. (Although this isn’t guaranteed; my university credit union just instituted a monthly checking account fee.)
- Low rates on mortgages and auto loans. Many credit unions also issuer credit cards with lower interest rates (and some even have good rewards). You might also have more flexible terms, or be evaluated more by a person, rather than an algorithm.
- Competitive rates on savings products like CDs and some savings accounts. You might have to go online to get the best rates, though. However, many credit unions offer higher yields on cash products.
- Personal attention and better customer service are items often cited by credit union members. Many people like the feeling of belonging to a smaller community, and a credit union can provide that perk.
Many people worry that they will have to pay outrageous fees if they visit an ATM while traveling, though. The good news is that many credit unions belong to co-ops that allow you to visit ATMs at participating credit unions all over the country without paying a fee. In some cases you can even go in to a co-op credit union and do your banking. Make sure you find out what this entails before you leave town, though.
Not everyone likes using a credit union. However, credit unions can provide a number of benefits and perks that seem to be disappearing from the big banks. It doesn’t hurt to include credit unions in your efforts to shop around for a place to keep your money. The right credit union can give you great service and save you money!
Cherleen @ My Personal Finance Journey says
When I heard of the news that customers will be charged when they use their debit card on other merchant stores, I could not understand why. So, I immediately withdrew all my money, closed my account with them, and transferred it to other bank. I have been reading about credit unions lately, came across several posts on different blogs. So far, I am getting positive feedback and half-convinced that I should open an account with a local credit union. Maybe not my entire savings, just a part of it , to see how it works and if it will fit my lifestyle.
Track Your Bucks says
I have used credit unions exclusively for over a decade. I get direct deposit, no checking fees, ATMs and debit cards, and great service. Between online banks and credit unions, there really is little reason to do business with a big bank anymore. Many credit unions have also eased up on membership rules – no longer do you have to be a member of an exclusive group to join.
The only negative of a credit union is the number of branches. Otherwise it is one of the best bank like systems.
20's Finances says
I grew up with my first bank account at a local credit union. I still have my acct with them for a variety of reasons, but I miss the higher interest rates and personal attention. The only downside is the local aspect. I wish I could find a branch anywhere like I can with my national bank.
Paul @ The Frugal Toad says
I currently have accounts at BofA and Wells Fargo so I will most likely move my accounts to Wells Fargo which will have a $3 monthly fee for debit card usage. At some point I may have to check out a credit union if fees continue to increase.
Shaun @ Smart Family Finance says
I’ve banked at my local credit union since I was a teen. They’ve saved me tons of money. The biggest credit union in the area has branches all over the metro so it’s convenient too.
Jenna, Adaptu Community Manager says
Love it! I’m currently researching credit unions and am looking to make the switch starting on Oct. 20th – International Credit Union Day!
Grampa Ken says
The are half a dozen credit unions within a few blocks of home, two that belong to my branch. They are popular here in BC where accounts are insured for the entire amount.
In contrast to my bank investing experiences where I often returned home with something I hadn’t wanted, I have always found credit union staff to be friendly, and up front with my interests in mind. They do exist solely to serve their members and not to pay high dividends to share holders. The profits are returned to members, offering higher deposit rates and lower rates on loans.