Finance Globe

U.S. financial and economic topics from several finance writers.
6 minutes reading time (1241 words)

Credit Unions

Better banking may mean not using a bank.
Choosing a financial institution, for many, simply means going to the bank their parents do business with, picking one that's close to home or work, or giving in to advertised freebies meant to entice them to open an account. But before settling for a commercial bank, consider checking out your local credit union.

Credit unions, just like banks, offer a wide variety of financial services such as checking, savings, and money market accounts, CDs, loans and mortgages, credit cards, and online banking. But the similarities stop there; credit unions operate very differently from banks, and that difference is usually better for the consumer.

Banks
A bank is a commercial enterprise; decisions are made by a paid Board of Directors. The Board is elected by stockholders, and so decisions are made to bring the most profit to the stockholders. Bank profits come from fees the customer pays for various services, and from interest charges the customer pays on loans. A bank is just like any business; they exist to make a profit from their customers, and profits only go to the owner or those who invest in the bank's stock.

Anyone can be a bank customer; you don't have to belong to any special group to open an account or take out a loan. And you can get a car loan or a credit card issued by a bank that you don't even have a checking account with. Banks offer their services to anyone who meets their credit criteria.

Due to their for-profit nature, many banks have a minimum deposit of $50-100 to open an account, and may charge account maintenance fees if the balance drops below that minimum. Some banks do offer free checking, fewer fees, and no minimums on savings accounts in order to compete with other banks for your business. But a bank pays taxes on their profits, just like every other business. They have to charge enough for their services to realize a healthy profit after paying their tax bill.

Bank deposits are insured up to $100,000 by the Federal Deposit Insurance Corporation (FDIC). All FDIC-insured banks must meet high standards for financial strength and stability.

Credit Unions
Credit unions often provide financial services identical to banks, but the similarity stops there. Credit unions are not-for-profit financial cooperatives, owned and controlled by the people who use the credit unions' services. Because of this, account holders are not customers; they are members, or shareholders.

Decisions are made by a volunteer Board who are also members of the credit union. The Board is elected by credit union members in a democratic one person-one vote, regardless of the size of their account holdings. Any fees charged for services are necessary to cover the cost of the service, not so the credit union can profit from them. Any excess funds are returned to members in the form of dividends.

Since credit unions are not-for-profit, they are exempt from paying taxes. No profit and no tax means that those savings are passed down to the member by higher yields on deposits and lower rates on loans. In general, credit unions are a better deal, but check the rates before you switch from a bank; some banks may offer a better deal than some credit unions.

Yes, there is a catch; the law requires that credit unions limit their membership to a special group of people. Membership may be limited to those who work for a particular employer, work in a certain field, or belong to a certain church. Some credit unions widen their field of membership to anyone who lives or works within a certain geographical area, making it very easy to become a member.

Credit union deposits are insured up to $100,000, just like with a bank, as long as the credit union is insured by the National Credit Union Administration (NCUA). Credit unions must also meet strict guidelines to be NCUA-insured.

Credit union members are often pleased with the service they receive.
Credit unions, in general, are known for better service than banks. The credit union motto is, "Not for profit, not for charity, but for service." Credit unions like to say that members are more valuable than their money, and it often shows.

Credit unions like to help their members save money and tend to guide them to financial products that are best for the member. Good service not only means dealing with a pleasant teller, but also that the member receives services that best suit their needs at a reasonable cost. Credit unions can truly focus on member's needs because they aren't driven by profit.

The main drawback to a credit union is that you may give up a little convenience. Credit unions have fewer branch locations than a typical commercial bank, usually limited to the general area the credit union is located. You may find plenty of branches within a city, and it may be very easy to find your credit union as long as you aren't travelling across the state.

I, personally, have accounts with two different credit unions. One is located in my parent's home-town; I opened an account there after getting my first job as a teenager. Deposits could be made by mail, electronic transfer, or direct deposit, but I really only bank there when I am visiting my parents. I could close the account, but I hate to give up such a great credit union. So I keep that account open, and use it for my emergency savings.

My other credit union is right here in my town. There are three branches within a fifteen minute drive, so one is conveniently located no matter which direction I'm going. There's a total of 16 branches, and they are all located within about a thirty-mile radius.

To me, the limited area isn't a big deal, even when I travel. Those who often travel out-of-state may find this inconvenience to be unacceptable, but on-line bill-pay, direct deposit, and the use of a debit or ATM card can virtually eliminate any problems with using a financial institution from far away.

Credit unions know their members may need to use an ATM more often than bank customers, due to the limited number of branches. Many credit unions are in a network that allows the use of a network ATM without incurring additional ATM charges, which is another way credit unions are trying to take care of their members.

Finding a Credit Union to Suit Your Needs
Credit unions rarely advertise; it would defeat the purpose of keeping operating costs low. Low overhead allows the credit union to offer services at a reasonable cost to the members, and what's best for the member is what a credit union's all about.

If someone in your immediate family is a credit union member, that credit union may be a good place to start; credit unions often open membership to spouses, siblings, and children of members, even if you wouldn't qualify under their membership guidelines. And, your employer would know if your job qualifies you to become a member at a credit union.

There are likely to be several credit unions in your area, so do some research and find one that suits your needs. Compare fees and rates for the services you are most likely to use. A credit union can be found in your area at http://www.creditunion.coop/cu_locator/quickfind.php.



Sources:
wikipedia.org
ncua.gov
creditunion.coop
allbusiness.com
fdic.gov
Paying for Online Purchases
Certificates of Deposit (CDs)
 

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Saturday, 24 August 2019

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