The Benefits of Choosing a Credit Union

07
July

A credit union is a financial institution that is owned and operated by its members. It provides financial services for its members, including: savings and checking accounts, certificates of deposit, various types of loans and other services. All of this is accomplished on a non-profit basis.

A bank is a financial institution that is chartered by a state or the federal government. It also performs financial services for its customers. It does everything the credit union does and more, but there is one substantial difference.

Credit unions are non-profit. Banks earn the highest amount of profit and income they can. Their fees are higher and often the interest rates they pay to depositors are lower than what the credit union customer receives. What does this situation say to the average bank customer? It says there are many benefits for those who choose to do business with a credit union. Both have accounts insured by an agency of the federal government, so your money is equally safe in either kind of institution.

1. How else are banks and credit unions different?
Anyone can go into any bank, open an account and do business with them. To join a credit union, a person must ordinarily belong to a participating organization, such as a labor union, or work in a particular industry. However, there are other credit unions that require only that you live in the general area and pay a small fee to join. Just having a pulse does not qualify a person to join. There must be some common bond.

2. Who runs a credit union?
Credit unions have the same kind of personnel that banks do. Upper management is a board of directors who set policy and make decisions. The board is made up of elected volunteers who want a say in how things are done.

3. Are relatively small credit unions able to compete with giant banks?
Yes, they can, because they focus on service and low operating costs. Banks focus on profitability.

4. Do banks have any advantages over credit unions?
Yes, banks may offer some products and services that some credit unions do not. You will need to check with specific institutions about specific services to know if this is the case in your situation. Some credit union members say that when they did their banking at a bank, there were many attempts to sell them products and services. Going to their credit union is a simpler process.

5. Do credit unions offer credit cards?
Yes, they do. The process for opening one and the rules for using it are basically the same as with a bank-based credit card. The one significant difference is the interest rate on the credit union card can average a 2% lower interest rate than the average bank-based card.

6. Do credit unions have a tax advantage over banks?
Since credit unions are non-profit, they do not earn money and, therefore, do not have taxable income. Banks must pay taxes on their earnings.

7. How well did credit unions weather the sub-prime interest crisis?
By and large, they did much better than banks, because credit unions made very few sub-prime loans. Not being profit-driven, they normally take fewer risks. Most do not have a sub-prime lending program.

8. How important is the credit union’s name?
Don’t be concerned about its name. For example, the Boeing Employees Credit Union at one time was only open to people who worked for that company. Now, anyone who lives in the state of Washington can join. If you wonder if you are eligible for membership, ask. You may be able to join.

9. How does the advertising of the two types of institutions compare?
Clearly, banks have more money to spend on things like advertising and public relations. The bank websites may look more polished and their printed materials more varied and attractive, but clearly, these things do not make a substantive difference in the way business is done or the associated cost for customers.

Each person must decide on the basis of his own situation as to which type of financial institution is best for him. Hopefully, this information will help you make that decision.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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