Credit Union Benefits - How They Help With Financial Stability
Stability can be hard to achieve in today's complicated financial world. A credit union is an interesting alternative to standard banking that a lot of people are looking into. This article about credit union benefits will show you the different ways that these banks help make the economy more stable as a whole.
Author:Gordon DickersonReviewer:Habiba AshtonJan 05, 20242K Shares49.1K Views
Stability can be hard to achieve in today's complicated financial world. A credit union is an interesting alternative to standard banking that a lot of people are looking into.
This article about credit union benefitswill show you the different ways that these banks help make the economy more stable as a whole. Credit unions are a great place for people who are trying to build a safe financial future to get help because they offer personalized services and community-focused programs.
What Is A Credit Union?
A credit union stands as a cooperative, nonprofit, and member-owned financial institution, diverging from the shareholder-owned structure of banks. With over 122 million Americans holding membership, credit unions prioritize their members, who are also their customers.
While credit unions provide a similar array of financial products and services as banks, they may use distinct terminology like "share draft account" instead of "checking account." Reflecting their member-owner model, credit unions distribute "dividends" instead of "interest" to their customers.
Opting for a federally insured credit union ensures a parallel to FDIC insurance through the National Credit Union Administration (NCUA). This federal insurance safeguards up to $250,000 of qualifying deposits per depositor, per insured credit union, for each account ownership category in case of a credit union failure.
In essence, credit unions serve as secure havens for savings and borrowing at reasonable rates. Their nonprofit status and community-centric mission often lead to notable differences from banks, offering members unexpected benefits and reinforcing their commitment to providing a safe and community-oriented financial environment.
Understanding A Credit Union
Credit unions adhere to a fundamental business model where members collectively contribute their funds (essentially purchasing shares in the cooperative). These pooled resources are utilized to offer loans, demand deposit accounts, and various financial products and services within the community of members. The generated income is then allocated to support projects and services geared towards benefiting both the community and the specific interests of credit union members.
Advantages Of Credit Unions
Credit unions operate with a fundamental mission to enhance the financial well-being of their members and contribute positively to their communities. Joining a credit union can bring forth several noteworthy benefits:
Competitive Rates On Loans And Savings Accounts
Credit unions prioritize providing favorable rates to their members. Freed from the obligation to distribute profits to shareholders, credit unions often pass on these savings to their members through higher annual percentage yields (APYs) on savings accounts and certificates of deposit (CDs), along with lower annual percentage rates (APRs) on loans. Credit unions consistently offer some of the best rates for checking accounts, high-yield savings accounts, and CDs.
Exemplary Customer Service
Credit unions frequently outperform banks in customer satisfaction surveys. For instance, Consumer Reports revealed that 96% of credit union members expressed being "highly satisfied" with their credit union experience. As the customers are also the owners of credit unions, these institutions maintain a strong focus on delivering exceptional customer service, a commitment not always matched by every bank.
Support For Small Businesses And Borrowers In Need
Small businesses that larger banks might overlook or underserve often receive loans from credit unions. Whether you are a small business owner or simply want to contribute to the support of local businesses in your community, being a credit union member can make a significant difference.
As nonprofit organizations, credit unions also emphasize providing loans to individuals facing financial challenges. Many credit unions offer emergency loans of up to $5,000 or short-term cash advance/payday alternative loans of up to $2,000. This presents a more favorable alternative to payday lenders, offering individuals a better financial solution through their credit union.
Community Engagement
A significant proportion, nearly 50%, of credit unions dedicate themselves to a specific mission of serving low-income communities. Irrespective of the locality, city, or town, credit unions strive to foster connections within their local communities by offering affordable financial services. Through lower fees and higher returns on deposit accounts, credit unions contribute to annual savings of $12.6 billion for their members, along with additional savings of $5.6 billion on auto loans.
Credit unions play a crucial role in positively impacting the financial well-being of individuals who might otherwise face high fees from check-cashing services or encounter elevated interest rates on necessary car loans. By being present in local banking markets, credit unions generate substantial annual economic benefits totaling $4.9 billion.
Advocacy For Diversity And Inclusion
Given their strong community orientation and local relationships, especially in communities underserved by traditional banks, credit unions demonstrate a robust commitment to supporting diversity and inclusion.
In comparison to banks, credit unions boast more than 10 times the number of women serving as CEOs. Additionally, credit unions are more likely than banks to be designated as Minority Depository Institutions (MDIs), with over three times the number of credit union MDIs compared to bank MDIs.
While many organizations express their dedication to diversity and inclusion, credit unions integrate these values into their daily operations by actively addressing the financial needs of diverse communities.
Disadvantages Of Credit Unions
Fewer Physical Locations
Credit unions typically maintain a significantly lower number of brick-and-mortar locations compared to most banks, which may pose a challenge for clients who prefer in-person services. While many credit unions offer modern conveniences such as online banking and auto-bill pay, the smaller scale of these institutions can result in compromised accessibility.
Technology Limitations
Smaller credit unions often operate with more modest technology budgets than banks, leading to less advanced websites and security features. However, some mid-sized and larger credit unions may bridge this gap by providing mobile banking apps that rival those of larger, for-profit institutions.
Limited Product And Service Options
Although credit unions offer a broad range of financial products and services similar to banks, they may present fewer choices. For instance, a large bank like Bank of America might offer 20 different credit card options, whereas a significant credit union, such as the Navy Federal Credit Union (NFCU), might have only six. Even the second-largest credit union in the country, the State Employees’ Credit Union (SECU), offers just one credit card option.
Reduced Flexibility
Banks often allocate more resources to customer service and personnel, resulting in extended operating hours. Banks may remain open until 5 p.m. or 6 p.m. on weekdays and, in some cases, on Saturdays.
On the other hand, credit unions typically adhere to traditional banking hours, operating from 9 a.m. to 3 p.m., Monday through Friday. Although some larger credit unions, like SECU, may have a 24-hour customer service hotline, the overall flexibility in terms of operating hours may be more limited compared to banks.
How To Join A Credit Union
Credit unions often impose eligibility criteria for membership. For instance, certain credit unions cater exclusively to the military community, admitting only active-duty military personnel, veterans, specific government employees or contractors, and their family members. Others may define their membership based on factors such as employment with a particular organization, affiliation with a university, labor union, or residence within a specific geographic area.
While some credit unions have restricted memberships tied to specific employers, worker types, or localities, a considerable number are open to individuals from any background and welcome new members. Some credit unions adopt a digital-first approach, extending their membership nationwide. This means that regardless of your location or profession, you might have the opportunity to join a national credit union and access their competitive rates on loans, CDs, and savings accounts.
As part of the membership enrollment process, you may be required to pay a fee or make a donation, typically ranging from $5 to $25. This fee represents the cost of acquiring one share of ownership in the credit union cooperative. Joining a credit union is a straightforward process, whether you opt to visit a branch in person or open a new account online.
Credit Union Vs. Bank
While both credit unions and banks provide banking services, their fundamental objectives differ significantly. Credit unions prioritize the well-being of their members, whereas traditional banks may prioritize shareholders over customers.
The profit motive guides traditional banks, as they aim to generate profits for their shareholders. This often leads to minimizing interest payments on deposits and maximizing interest charges on loans.
In contrast, credit unions, being not-for-profit entities, redirect their profits back to members. This results in higher interest rates on savings accounts and lower fees on loans and credit cards. The National Credit Union Administration (NCUA) report as of March 2023 stated that credit unions' five-year certificates of deposit had an average national rate of 2.66%, which was higher than the average rate at conventional banks of 1.83%.
Another notable distinction is the size disparity between the two. Credit unions are generally smaller, with fewer brick-and-mortar locations, and they often offer a more limited range of products compared to traditional banks.
Credit Unions And Student Loans
Numerous credit unions nationwide participate in the Credit Union Student Choice program, providing undergraduate students with an alternative option for student loans.
Interest rates for student loans from credit unions are often more competitive compared to traditional banks. Credit unions are also generally more willing to work with individuals with a less-than-ideal credit history or those lacking a co-signer. However, it's important to note that credit union rates might still be higher than those for federally subsidized student loans.
To secure a student loan from a credit union, you must become a member of the institution. Membership criteria vary but may involve a connection to the university you plan to attend. Some credit unions charge a membership fee, typically ranging from $5 to $50.
Upon joining, a credit union may require you to open a checking account and make deposits before processing your student loan application. Expect a credit check during the application process.
Most credit unions defer loan repayment until after graduation. However, once the grace period concludes, credit unions often enforce strict repayment terms, potentially limiting flexibility in managing your loan payments.
Credit Unions And Mortgages
The mortgage lending industry suffered a significant blow during the 2008 Great Recession, creating a void that credit unions are actively helping to fill. By 2015, credit unions had secured an 11% market share, marking a 4% increase in just two years, and this trend is expected to persist.
Historically, credit unions had limited capital for lending compared to large banks, leading them to steer clear of the mortgage industry. However, when major banks faltered in meeting customer needs, credit unions seized the opportunity and entered the mortgage lending arena.
Over 65% of the country's credit unions now provide primary mortgages. As non-profit entities, credit unions are often more inclined to offer mortgages with lower interest rates than their for-profit banking counterparts. For instance, in January 2016, NASA Federal Credit Union offered a 30-year fixed rate of 3.76% on conventional mortgages, while Wells Fargo Bank presented the same loan with a fixed rate of 4.06%.
Credit unions sweeten the deal by providing incentives such as zero-down payments, exemptions from private mortgage insurance premiums, 100% financing, and even a 20% cash refund on real estate commissions. Unlike banks that frequently sell mortgages, credit unions typically retain the mortgage for the entire loan duration.
Credit Unions And Debt Consolidation Plans
If you find yourself drowning in multiple monthly credit payments and seek relief through a debt consolidation plan, credit unions might be the ideal solution. Debt consolidation aims to merge all your bills into a manageable single payment. Whether it's through a debt management program, a debt consolidation loan, or a debt settlement plan, the approach depends on the total debt and your available income.
Consider reaching out to your credit union to inquire about their credit counseling department or ask for recommendations. They can guide you in establishing an effective debt consolidation plan to eliminate your debt within a 3 to 5-year timeframe.
Credit Union Benefits - FAQ
What Is The Purpose Of A Credit Union?
Credit unions operate to promote the well-being of their members. Profits made by credit unions are returned to members in the form of reduced fees, higher savings rates, and lower loan rates.
What Does It Mean To Use A Credit Union?
Following the tradition of “one member, one vote” our credit union has undergone frequent name changes reflecting our continual growth in our scope of membership. As USECU, or United States Employees' Credit Union, our credit union started in Downtown Houston, TX for government employees in the area.
When Would You Use A Credit Union?
Credit unions can be ideal for a low-interest loan, lower mortgage closing costs, or reduced fees, but you'll need to qualify for membership. Larger banks may offer you more choices regarding products, apps, and international or commercial products and services, and anyone can join.
Conclusion
The wide range of benefits that are included in credit union benefits is strong evidence of how they help people stay financially stable. Credit unions are a good alternative to traditional banks because they put their members' well-being first, offer competitive rates, and stay focused on the community. Taking advantage of the unique features of credit unions can lead to a safer and more stable financial journey, giving people the confidence to handle the unknowns of the financial world.
Gordon Dickerson
Author
Habiba Ashton
Reviewer
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