Credit Unions are not-for-profit cooperative financial institutions that are owned by their members and governed by volunteer boards of directors. As a result, they typically offer more competitive rates on deposits and loans than for-profit banks. They are also exempt from federal taxes, which helps them return the profits they earn to their members.
How do they work?
Credit unions are not-for-profit cooperatives that are owned by their members and governed through board elections. Like banks, credit unions charge interest and fees on accounts, but they return the resulting profits to their members by paying higher APYs on savings and loan products and charging lower rates on borrowing.
They’re a good option for people who want to save money, or if you need a place to borrow a small amount of cash. They may also be an attractive option for those who want a more personal connection to a local financial institution.
Membership requirements: Originally, membership was restricted to people who shared a common bond: working in the same industry or company, living in the same community, and so on. In recent years, these limitations have been relaxed or removed altogether, though it is still important to shop around for a credit union that has the right type of membership requirements for you.
Locations and more: Brick-and-mortar banks are available throughout the country, while smaller, regional credit unions often service a specific geographic area. Both types of banks have physical branches and ATMs, but bigger banks tend to have more locations and provide more services than their credit union counterparts.
Online and mobile banking options: Banks Credit Union are more technologically advanced than their credit union counterparts, which can be a plus for some consumers. However, some credit unions have fewer features and a slower online and mobile app experience than their big-name rivals.
Rates and fees: Because they are not-for-profit, credit unions have a different set of rules regarding fees than for-profit banks do. They don’t have to pay for advertising and marketing like banks do, which means that they can often charge a lower rate on loans and offer higher APYs on savings products than their competitors.
In addition, they don’t have to pay a dividend to shareholders, which can mean lower costs for members. They also don’t have to worry about paying federal taxes, which allows them to pass those costs onto their members in the form of lower loan rates and better deposit rates.
They can also offer free or low-cost services, such as home-buying seminars, financial counseling and workshops to help you become a US citizen. They are also known to roll up their sleeves, donate their time and support causes they believe in.
Personalization: Many credit unions are focused on the needs of their local communities and are there to help their members succeed financially. They sponsor local events, host home-buying seminars and give their employees time off to serve their community.
Community involvement: In general, credit unions are more involved with their communities than for-profit banks. They sponsor and support local causes, sponsor and sponsor events that benefit their members, and even donate their time to charity.