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Credit Union 101: Should You Consider To Join?

Credit unions offer some great benefits for most of the customers. However, they still lack many important features. Here's all you need to know about credit unions: how does it works, what do they offer, how can you join and the most important advantages and disadvantages for potential members:
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

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Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
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Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024

The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.

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Table Of Content

What Is A Credit Union?

A credit union is a type of financial institution that operates as a cooperative, meaning it is owned and controlled by its members, who are also its customers.

Members pool their savings to create a source of funds that can be used to offer loans to other members at lower interest rates than traditional banks.

Credit unions also typically offer other financial services such as checking and savings accounts, mortgages, and investment services. The goal of a credit union is to serve its members and provide them with affordable financial services, rather than maximizing profits for shareholders.

Members of a credit union would have a common denominator:  they may be working for the same company, attending the same college, serving in a branch of the armed forces, belonging to the same church, or are residents of the same community.  This business model has gained popularity over the years.

According to Cuna Mutual Group, there has been a gradual increase in the membership of credit unions in the United States from 2013 to 2020. Since 2013, the membership of credit unions has increased from 98 million to 127 million, which is an increase of 29 million members. On average, the membership grew by 4 to 5 million each year.

Collectively, credit unions have more than $615 billion in deposit liabilities.  Around the world, you can find more than 46,000 credit unions boasting of more than 172 million members.

What Financial Services Credit Union Offer?

Like banks, the products and services you can find in a credit union will vary from one credit union to the next.  Large credit unions carry a broader variety of products, while some smaller credit unions would just keep their offerings to a minimum.

Here are some of the basic products of credit unions – most of them are similar to what banks offer:

  • Savings accounts and ATM cards
  • Checking accounts
  • Money market and IRA accounts
  • Credit cards
  • Secured or unsecured personal loans
  • Mortgages and home equity loans
  • Auto and recreational vehicle loans
  • Travelers' cheques, money orders, certified checks, and foreign exchange

What Is A+ Federal Credit Union?

A+ Federal Credit Union is a non-profit financial institution that is owned and controlled by its members. Members pool their resources to provide each other with a range of financial services, such as savings and checking accounts, loans, mortgages, and credit cards.

Membership in A+ Federal Credit Union is usually limited to people who live, work, worship, or attend school in a specific geographic area or who are affiliated with a particular organization or group. It's important to check the specific eligibility criteria for A+ Federal Credit Union to determine if you're eligible to join.

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What's The Purpose Of Credit Unions?

The purpose of credit unions is to provide financial services to their members, who are also their owners, with the goal of improving their economic well-being.

This is achieved by pooling members' savings to create a source of funds for loans and by offering lower interest rates on loans and higher interest rates on savings than traditional banks.

Credit unions aim to serve their members and promote financial literacy, rather than maximizing profits for shareholders. Additionally, credit unions often have a strong community focus and may offer special services and benefits to their local area.

How Are Credit Unions And Banks Different?

Other than that, there are a couple of differences between banks and credit unions:

  • Taxation – Because of its nature as a non-profit organization, credit unions do not pay the same taxes that banks do.
  • Availability – Credit unions cannot be as competitive as banks in terms of the financial services that they offer because of their limited income and geographic presence.
  • Eligibility Requirements – While you may find it easy to just walk into a bank and open an account, that is not always the case with a credit union.To keep their tax-favored status, the law requires credit unions to limit their customer base to a group of people who all share a common distinction.  The law calls this the “field of membership”.
  • Safety and Guarantee – Safety will often come up as an issue when people choose between a bank and a credit union.  Many people are not aware that most credit unions carry federal insurance, the backing of the NCUSIF and the U.S. government.  Banks rely on the FDIC, which is another government agency, for their deposit insurance.
  • Technology  – Don’t expect credit unions to be abreast with the latest technology in banking.  The big banks have deeper pockets, so they have the luxury to invest in cutting-edge technology as fast as they come.  Credit unions can’t always do that.

The people who originally came up with the idea for a credit union designed it to be a cooperative financial institution for people with a common bond. 

Banks and credit union deposit insurance difference
both the FDIC and the NCUSIF protect up to $250,000 per depositor (Photo by Kevin George/Shutterstock)

Are Credit Unions Safer Than Banks?

Credit unions and banks are both regulated financial institutions and generally considered safe places to keep your money. However, there are some differences in the level of protection offered for your deposits:

  1. Insurance: Both credit unions and banks are insured, but credit union deposits are insured by the National Credit Union Administration (NCUA), while bank deposits are insured by the Federal Deposit Insurance Corporation (FDIC).

  2. Maximum coverage: The NCUA and FDIC both provide insurance coverage up to $250,000 per depositor, per account type.

  3. Financial stability: Both credit unions and banks are required to meet certain financial stability standards. However, credit unions are typically smaller and may have less financial resources than larger banks, making them a slightly higher risk. While there are bigger ones such as Navy Federal or Alliant have low chances to fall, most credit unions are very small.

In general, both credit unions and banks are safe options for your money. It's important to research and compare the specific institutions you're considering to determine which one best meets your financial needs and offers the level of protection you're looking for.

FDIC vs SIPC vs NCUA
FDIC insurance protects checking, savings, money market, and certificates of deposit (CDs).

Credit Unions Pros and Cons

Credit unions offer some great benefits for most of the customers. However, they still lack many important features and their accessibility for customers may be limited in many states.

Pros
Cons
More Focused on Customers
You Must Become a Member
Better Rates On Loans
Fewer Products
Lower Fees
Limited Online Facilities, ATMs & Branches
Flexibility
No Rewards Programs

Being a credit union customer (such as a savings account holder) means being a member of the institution.  The credit union exists to satisfy its members or shareholders, not stockholders like private banks. 

This means that they do not primarily focus on generating big profits but rather on providing the best customer service and support possible for their members.

You will see that credit unions have policies that are friendlier and more lenient if you make a mistake or have a relatively poor credit history. On top of this, you may find that the employees are more accommodating to help you in case you find yourself in a difficult situation.

Not only do credit unions offer lower rates on loans but they sometimes also give higher rates on deposits, whether they be a savings account, Certificates of Deposit, IRAs or money market accounts. 

Remember that they are not-for-profit organizations so they can redirect any surplus funds to their customers.

Credit unions rates
Credit unions offer lower rates on loans

Aside from offering higher deposit rates, they also have a lower fee structure as well.  Since they don’t really exist to make tons of money, they don’t have to get more from the members. 

In fact, they help the members to keep their money intact – just another way of showing that the members are their first priority.

So, if you don’t meet the requirements, the bank will automatically decline your application without further review.  After all, one lost customer for them is hardly a drop in the bucket of their mega millions in profit.

But since credit unions are relatively smaller and have a member-focused philosophy, they are more open to members even if they have a not-so-ideal financial history.

They are also able to make exceptions for existing members in good standing in cases when unexpected issues come out in relation with your application for a loan or credit.

In order to avail of any product or service, you must first become a member of the credit union and you can only become one if you were eligible in the first place.

After that, you’ll need to shell out some money for a minimum opening balance when you create your account.  That can be anywhere from $5 to $25.

Let’s face it:  banks have more assets and bigger capitals compared to a credit union. Even popular credit unions such as PenFed or State Employees Credit Union, don't have a varied set of products such as the big banks.

This allows the banks to have the freedom and ability to offer a wider variety of products and give out larger loans, like for a house or business capital.

Being a small association, a credit union will not have enough resources to try to be a par with the banks in that particular area.

Don’t expect your credit union to have the latest digital online banking facilities – most of them do not invest in sophisticated modern technology.  For banks, going online was something almost mandatory in order to be competitive.

While you may find a credit union with an online banking facility, it would probably be very basic.

Also, Many credit unions are single-location enterprise.  Yes, the small, family-like atmosphere in the credit unions is what draws many customers to them but lacking multiple branches could become an inconvenience to many. 

Credit unions have started to join the credit card bandwagon and they are doing good business. 

 The thing is, most credit unions have not embraced the idea of rewarding cardholders as most bank has done.  In fact, only many of the credit union credit cards carry cashback benefits, such as the PenFed Power Cash Rewards.

How To Choose a Credit Union?

To choose a credit union, consider the following factors:

  • Eligibility: Make sure you meet the credit union's membership requirements.

  • Goals: choosing the credit union depending on your goals. For example, if you want a credit union that offers online and mobile banking, you’ll have a bigger chance if you join one of the larger national credit unions to get this service. If your objective is to secure a low-interest credit card or a low-rate auto loan, you can probably find that at smaller credit unions.
  • Services: Consider the services offered by the credit union, such as savings and checking accounts, loans, mortgages, and credit cards.

  • Fees: Look at the fees the credit union charges for various services, such as account maintenance fees or loan origination fees.

  • Rates: Compare the interest rates offered by the credit union on savings accounts, loans, and mortgages to those offered by other financial institutions.

  • Convenience: Look at the credit union's locations, hours of operation, and online and mobile banking options to determine if it's convenient for you.

  • Reputation: Check the credit union's reputation by reading online reviews and checking its rating with organizations such as the National Credit Union Administration.

  • Insurance: Make sure the credit union is insured by the National Credit Union Share Insurance Fund, which provides insurance for deposits up to $250,000 per account.

  • Community involvement: Consider the credit union's involvement in and support of the local community.

Comparing multiple credit unions and considering these factors can help you make an informed decision and choose a credit union that meets your financial needs and preferences.

Comparing multiple credit unions
Comparing multiple credit unions and consider your goals, fees, variety of products, reputation and eligibility (Photo by Pavel L Photo and Video/Shutterstock)

Joining a Credit Union

The Federal Credit Union Act allows anyone to apply and join a credit union as long as he or she shares a common bond of employer, educational institution, branch of the military or government, church or community.

As we can see, over the years, credit unions have grown and evolved such that almost everyone is eligible for membership through one form of connection.

Credit unions will need you to prove your eligibility so be ready to provide the name of a relative, employer, group, or organization where you have affiliated yourself.

The number of credit unions in the US has been on a decline from 2013 to 2020, based on data from Cuna Mutual Group. 2013 had the highest number of credit unions at 6,795, but this number declined by 1,497 over the last 8 years to 5,298 credit unions as of 2020.

Common Eligibility Requirements

Eligibility requirements for credit unions vary, but typically include one or more of the following:

  • Employment: Membership may be restricted to employees of a specific company or organization.

  • Residency: Membership may be restricted to residents of a specific geographic area.

  • Membership in an organization: Membership may be open to members of a specific group, such as a union, religious group, or association.

  • Family relationship: Membership may be open to immediate family members of existing credit union members.

It is important to check the specific eligibility requirements of the credit union you are interested in joining, as they may vary. Some credit unions may have more flexible membership criteria, while others may have more restrictive criteria.

Credit union that are easy to join
Alliant, Connexus NASA Federal and First Tech credit unions are easy to join

Can I Become A Member?

Check out these ways to find out if you can become a member of a credit union:

  • Inquire with your human resources department at work. Your employer may have access to a credit union or may be able to sponsor you to join one.
  • Ask your family members (immediate and extended) if their employers provide their employees with access to a credit union. Many credit unions extend the membership privilege to family members – some of them even allow cousins to join.
  • Ask around from friends, neighbors, and acquaintances if they know of any community credit unions, either for your local community, county, or city.

You can do your search by using the online search tools that CUNA  provides or call your state credit union league.  Joining usually starts by filling out and submitting an application form – usually online. 

How To Join?

To join a credit union, follow these steps:

  1. Determine eligibility: Most credit unions have specific membership requirements based on employment, residency, or membership in a specific organization.

  2. Research credit unions: Compare different credit unions and their services to find the one that best meets your needs.

  3. Open an account: To become a member, you'll typically need to open an account with a small deposit and maintain a minimum balance.

  4. Complete membership application: Submit a membership application, which may include personal and financial information.

  5. Fund your account: Once your membership is approved, you can deposit money into your savings account and start using the credit union's services.

Note: The exact process and requirements may vary depending on the credit union you choose.

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Picture of Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
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