Have you been considering switching financial institutions recently? Perhaps you have been shopping around for a good place to open a new savings account; or maybe you have been looking to get a new credit card. Whatever the reason, then joining a credit union may have crossed your radar.
What may surprise you is that credit unions offer a lot of the same types of products as a bank; oftentimes with rates that are lower. Savvy shoppers may see numbers like that and start to wonder, what’s the catch?
There is no catch. Caution may stem from the fact that we don’t really understand what credit unions are all about—and when we expect them to act like banks; how they do things can seem very strange indeed.
While the financial services offered may make banks and credit unions look the same on the surface, these two financial institutions are as different as it’s possible to be.
What is the key differentiation? The key thing to remember is that banks are for-profit corporations, while credit unions are not-for-profit cooperatives that are owned and operated by their membership. This not-for-profit philosophy influences every aspect of a credit union’s operation.
Not sure what that means? We’ll walk you through the key differences between banks and credit unions.
Membership has its privileges. If you’re using a credit union, you’re not just a customer, you’re a member. However, each credit union has a specific field of membership it serves, and not everyone can join every credit union.
For example, you might find some credit unions that are only for people who live in a certain area, or you may find credit unions that serve individuals who work in a particular profession; such as medical, education, and military professionals.
If you do not directly meet the eligibility criteria of a credit union’s field of membership, there is no need to panic. You may still be able to join a credit union by way of your charitable support or affiliation with one of the organizations related to their membership. PenFed is just one example.
There are many ways to become a member of PenFed, which includes eligibility through employment, association membership, or volunteerism. And if you are not eligible to join in this manner, you can still become a PenFed through the following organizations: National Military Family Association or Voices for America’s Troops.
Credit unions are usually small, local organizations. Credit unions are typically smaller than banks, though this doesn’t mean that they’re microscopic. Large credit unions can have hundreds of thousands of members and PenFed, in particular, serves over 1.2 million members, worldwide, but that’s still a far cry from the country’s biggest banks.
Smaller size can also mean fewer branches too. This may seem like a downside, but it tends to mean credit union members get more personalized service when they visit a branch. Most credit unions are local organizations, with branch offices and ATMs located where they’re most convenient for members. Since a branch may not be located on every corner, this again may seem like a downside if you visit an ATM every day; however for most people who bank online and use debit or credit cards for many transactions, fewer branches might not be a noticeable detriment.
Credit unions are just as safe as banks. Even though they are not called banks, your money’s still secure at a credit union. All federally insured credit unions are regulated by the government’s National Credit Union Association (NCUA), where you can even look up information about a credit union’s financial health. Through NCUA’s Share Insurance Fund (NCUASIF), every account at a federal credit union is insured up to $250,000, just like it would be at a bank—and no member has ever lost money insured by the NCUASIF.
Should you join a credit union? If you’re considering joining a credit union, we recommend that you do the math. Look into interest rates and fees at both the credit union and your bank for whatever sorts of accounts you’re interested in. Because of the not-for-profit goal of credit unions, we’re pretty confident that if you look at the numbers you’ll find credit unions make good financial sense.
But you should also be sure to consider that a credit union is likely to have fewer branch and ATM locations, which can be problematic if you’re a frequent ATM-visitor. When you’re looking at the numbers, you should be sure to also consider how often you visit the ATM to get cash and work fees into your math. However, you should bear in mind that many credit unions will have a network of ATMs that you can access without fees, and some credit unions go even further and reimburse ATM fees you might wind up paying.
A credit union has your best interests in mind. We still think that the math will come out in favor of credit unions, but it’s important that you take the time to consider all the angles before you make a decision. In the end, we think it comes down to who your financial institution is working for.
With credit unions, you can always be assured that they’re working for their members. And that comes down to better service and lower costs.