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!