Banking » Guides » Credit Union Pros And Cons: Is It A Smart Choice?
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Credit Union Pros And Cons: Is It A Smart Choice?

While Credit unions offer lower fees, competitive rates and personalized service, they have fewer branches, ATMs and variety of products.
Author: Josiah Mwangi
Josiah Mwangi

Writer, Contributor

Experience

Josiah Mwangi is a Certified Public Accountant and has an MBA in Finance. He has been writing for the Huff Post, Corporate Finance Insitute, Smarter.loans, and other top publications. In his free time, he goes hiking alongside his two German Shepherds
Interest Rates Last Update: April 15, 2024
The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.
Author: Josiah Mwangi
Josiah Mwangi

Writer, Contributor

Experience

Josiah Mwangi is a Certified Public Accountant and has an MBA in Finance. He has been writing for the Huff Post, Corporate Finance Insitute, Smarter.loans, and other top publications. In his free time, he goes hiking alongside his two German Shepherds
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

When it comes to managing your finances, there are many options available, including credit unions.

Credit unions are non-profit financial institutions that offer a range of financial products and services to their members. They have gained popularity in recent years due to their community-focused approach and lower fees and interest rates compared to traditional banks.

However, credit unions also have some limitations that should be considered before deciding whether to become a member. In this article, we will explore the pros and cons of credit unions to help you make an informed decision about whether they are right for you.

How Credit Unions Work?

Credit unions are financial cooperatives owned and operated by their members. Unlike traditional banks, which are owned by shareholders, credit unions are not-for-profit organizations that exist to serve their members.

In order to become a member of a credit union, you must meet the eligibility requirements established by the credit union. Typically, this means that you must live, work, worship, or attend school in a certain area, or belong to a specific group or organization.

Credit unions accept deposits from their members, which they use to make loans and provide other financial services.  Also, they offer a wide range of financial services, including checking and savings accounts, credit cards, auto loans, mortgages, and insurance products. 

Pros And Cons Of Credit Unions

Here are the main advantages and limitations of credit unions:

Pros
Cons
Lower Fees
Limited Branch And ATM Networks
Competitive Deposit Rates
Membership Requirements
Personalized Service
Limited Product Offerings
Member Ownership
Online Banking Limitations
Community Involvement
Less Convenient Hours

Credit unions are not-for-profit organizations, so they often charge lower fees than traditional banks.

 Credit unions typically offer higher interest rates on deposits than traditional banks. However, this does not always happen when comparing them to online banks.

Credit unions are often smaller and more community-oriented than traditional banks, which can lead to more personalized customer service.

That's even more important when comparing them to online banks, which usually provide digital customer service online or by phone.

Credit union members have a say in the credit union's operations and policies because they are also owners.

Credit unions exist to serve their members' financial needs, rather than to make a profit for shareholders.

Credit unions are often involved in their local communities and may offer programs and services that benefit the community.

Credit unions may have fewer branches and ATMs than traditional banks, which can make banking less convenient.

While online banks don't offer branches at all, compared to traditional banks – their geo footprint is much smaller.

While this is not 100% for all credit unions, most of them typically have strict eligibility requirements that may limit who can become a member.

Credit unions may not offer as wide a range of financial products and services as traditional banks.

Credit unions may not offer the same level of online banking experience and functionality as traditional banks.

 Credit unions may have limited hours of operation, which can make it difficult for some people to do their banking.

How to Decide if a Credit Union is Right for You?

Deciding if a credit union is right for you involves considering a variety of factors, such as your banking needs and preferences, as well as the benefits and drawbacks of credit unions compared to traditional banks.

Here are some questions you can ask yourself:

  • Am I eligible to become a member of a credit union? Credit unions have membership requirements that you need to meet in order to join. Consider if you meet the eligibility requirements of any credit unions in your area.

  • What are my banking needs and preferences? Think about what services you need and how you plan to use them. For example, do you need a checking account, savings account, or loan? Do you prefer in-person banking or online banking?

  • What are the fees and interest rates at credit unions in my area? Compare the fees and interest rates of credit unions in your area to traditional banks. 

  • How convenient are the branch locations and hours of operation? Consider the location of credit union branches and their hours of operation. Do they have a branch near your home or workplace? Are their hours of operation convenient for you?

  • What is the level of customer service I need? Does digital tools and online banking may be enough, or I need help in a variety of financial aspects?

  • How financially stable is the credit union? Consider the financial stability of the credit union by reviewing its financial statements and ratings. Is the credit union financially healthy and secure?

By asking yourself these questions, you can make an informed decision about whether or not a credit union is right for you.

Credit union benefits and drawbacks
Credit union main benefits include low fees, mid-high deposit rates and personalized service. But, there are drawbacks. (Photo by fizkes/Shutterstock)

How To Join A Credit Union?

To join a credit union, you will typically need to follow these steps:

  1. Determine your eligibility: While there are easy-to-join credit unions, they usually have membership requirements that you need to meet in order to join. Determine if you meet the eligibility requirements of any credit unions in your area.

  2. Fill out an application: Contact the credit union or visit their website to fill out an application. You will need to provide personal information, such as your name, address, and social security number.

  3. Provide proof of eligibility: You may need to provide proof that you meet the credit union's eligibility requirements. For example, if the credit union requires you to work for a certain employer, you may need to provide proof of employment.

  4. Deposit funds: You may need to make an initial deposit to open your account. The amount required may vary by credit union and type of account.

  5. Sign agreements: You will need to sign agreements, such as a membership agreement and account disclosures, when you open your account.

  6. Receive account information: You will receive information about your account, such as your account number and online banking login information.

Once you have joined a credit union, you can start using their financial products and services, such as checking and savings accounts, loans, and credit cards.

What Are The Most Popular Credit Unions?

There are many credit unions in the United States, each with its own eligibility requirements, fees, and services. Here are eight popular credit unions and a brief description of each:

  • Navy Federal Credit Union: Navy Federal is the largest credit union in the U.S., serving military members and their families. It offers a wide range of financial products and services, including checking and savings accounts, credit cards, high rates on CDs, and various loans.

  • State Employees' Credit Union: SECU is a credit union that serves state employees and their families in North Carolina. It offers low fees and competitive rates on financial products, as well as free financial counseling and education.

  • Alliant Credit Union: Alliant is a credit union that serves employees of select companies, organizations, and associations, as well as their family members. 

  • PenFed Credit Union: PenFed is a credit union that is opens to everyone. It offers high CD rates, various terms, and a competitive savings account.

Credit Union Alternatives

If you need a full banking solution, so online banks and traditional banks provide an alternative. However, if you just need to send or receive money, there are more options:

  • Traditional Banks: When it comes to variety of financial products, traditional banks are the ultimate alternative. They often larger than credit unions and have more branches and ATMs. However, they typically have higher fees and lower interest rates on deposits than credit unions.  Chase, Bank Of America, Citi and Wells Fargo are the leading options.

  • Online Banks: Online banks are financial institutions that operate exclusively online. Usually, they don't provide a suite of products like traditional banks, but they offer high rates on deposits and some of them, such as SoFi, Discover or Ally, offer a variety of options for customers.

  • Money Transfer Apps: Money transfer apps are mobile applications that allow users to send and receive money electronically. These apps can be used to transfer money between individuals, store money, pay bills, or make purchases online or in-store. Some popular money transfer apps include Venmo, PayPal, Cash App, and Zelle.

However, money transfer apps have some limitations compared to credit unions. They do not offer traditional banking services, such as checking and savings accounts, loans, and mortgages. They also may not be accepted at all merchants.

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FAQs

You can still maintain your credit union account if you move or change jobs.

Yes, deposits at credit unions are insured by the National Credit Union Administration (NCUA) up to $250,000 per account.

Yes, credit unions may charge fees for certain services, but they often have lower fees than traditional banks.

Credit unions make money by charging interest on loans and collecting fees for certain services.

It depends, Generally, many credit unions are part of a shared network of ATMs that allow members to use their ATMs without incurring additional fees, but it depends your specific credit unions conditions.

Picture of Josiah Mwangi

Josiah Mwangi

Josiah Mwangi is a Certified Public Accountant and has an MBA in Finance. He has been writing for the Huff Post, Corporate Finance Insitute, Smarter.loans, and other top publications. In his free time, he goes hiking alongside his two German Shepherds
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