What are the advantages of a credit union?

What are the advantages of a credit union?

Credit unions are a system of not-for-profit, community-based banking cooperatives built around the idea of promoting sound financial practices and the well-being of their members. They offer the same financial products and services as banks but differ from their corporate counterparts in their basic setup and objectives. 

Unlike banks that are owned and operated by shareholders, credit unions are collectively owned by their customers, who are referred to as members. Another point of difference between the two is that credit unions redistribute their profits to their member-customers as “dividends,” while banks pay “interest” to their customers.

These structural differences are also reflected in the naming of financial products. The equivalent of a bank savings account in a credit union is called a “share account” — a reference to the customer’s ownership or “share” of the credit union. Current accounts, likewise, are called “share draft accounts.”

Key Takeaways

Higher interest rates: Credit unions often offer substantially higher interest rates on savings and deposits.

Lower borrowing costs: Credit unions also often offer loans and mortgages at rates significantly lower than most banks.

More inclusive: In most cases, credit unions have a lower entry barrier for giving credit to people.

What's on This Page

In this article, we’ll touch upon several aspects related to credit unions, including:

  • What are the advantages of a credit union?

  • Things to consider before joining a credit union

What are the advantages of a credit union?

Although their numbers have been falling in recent years, credit unions remain incredibly popular among Americans. At the end of 2021, there were more federally insured credit unions in the US than federally insured banks. Part of their attraction is because credit unions are founded on cooperative principles.

Let’s explore some of the benefits and privileges that come with being a member of a credit union:

  • Higher rates on savings and deposits: Because credit unions are not beholden to shareholders, they are free to share their profits with members in the form of higher dividends on savings and deposit accounts, along with other benefits. Credit unions offer some of the best returns on share accounts, high-yield savings accounts (HYSAs), and certificates of deposit (CDs). For instance, the average credit union interest rate on a 5-year, $10,000 CD was 2.33% in the fourth quarter of 2022. The corresponding average bank rate was 1.58%.  

  • Affordable borrowing costs: Their not-for-profit structure allows credit unions to offer some of the lowest rates on credit products such as mortgages, credit cards, and vehicle loans. In the fourth quarter of 2022, the average interest rate on a classic bank credit card was more than a percentage point higher than what credit unions were offering. Similarly, a 48-month used car loan that you could secure from a credit union for 4.79% interest would cost you 5.86% at a bank. Beyond lower rates, credit unions are also willing to provide loans for small businesses and borrowers-in-need that are typically overlooked by banks. 

  • Lower entry bar for credit: Banks might refuse loans to people with a bad credit history or those without a credit history. Credit unions, on the other hand, typically have far more forgiving qualification standards for loans and mortgages. Because of their community-oriented philosophy, they are more likely to offer loans to people in financial trouble and offer reduced down payments. 

  • Beyond-banking benefits: True to their roots as cooperative institutions, credit unions take it upon themselves to promote financial inclusion and education by helping members learn about money matters and responsibilities. These efforts usually take the shape of workshops and free financial advice designed to enrich local communities. Some credit unions go beyond financial outreach programs to focus on local issues and social causes surrounding women, children, and at-risk groups

Things to consider before joining a credit union

If you’re unhappy with your current bank or tired of paying service fees, a credit union can be a welcome alternative. However, they are not for everyone and certainly not for every kind of financial need. Credit unions come with their own set of challenges and disadvantages.

Here are a few things to consider before signing up with a credit union:

  • Limited locations: Credit unions come in various sizes and some of the smaller ones have just a few brick-and-mortar branches spread across a particular state or county. Conducting in-person business may prove difficult if you live far away from available branches. 

  • Fewer ATMs: Many credit unions often have just a single ATM attached to their branches or a handful of standalone ATMs but they are spread out few and far between. That means you may occasionally have to rely on ATMs operated by other banks and pay a fee per transaction, if applicable. 

  • Low technology: If you’re used to snazzy banking apps and high-speed online services, some credit unions might prove disappointing. Because they are smaller in size and resources than traditional banks, credit unions often cannot compete in terms of investing in the latest technology.  

  • Limited credit card options: Credit unions do offer credit cards at comparatively lower rates of interest, but lack the variety of options offered when compared to most banks. You’re unlikely to find credit cards with attractive sign-up bonuses or reward programs at most credit unions.   

  • Membership hurdles: Some credit unions cater exclusively to specific communities, professions, and locations. Some will sign you on as a member only if you live within a particular geographical area. Others require their members to be employees of the state they operate in.

Make the most out of credit union opportunities

With so many factors to consider, picking a credit union that is just right for your needs can be challenging. Raisin is here to help you with the process.

We are an online savings marketplace offering a wide range of financial products from credit unions across the country. All participating credit unions on our platform are federally insured by the National Credit Union Administration (NCUA). Best of all, as a Raisin customer you are able to obtain credit union membership without any associated fees or donations. Plus, you have the convenience of operating multiple savings and financial products with a single log-in.

Join Raisin today for the best credit union experience.

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