A credit union is a non-profit financial institution that is owned by the people who use its financial products. It provides savings, loans and a range of other services to its members, which can help those who have a membership borrow money instantly, when they need it.
Members elect a board of directors to manage the credit union to ensure that their best interests are represented. Each member has one vote and volunteer directors are elected from the membership, by the membership.
Credit unions aim to serve members by offering competitive products with better rates and fees than you see with a for-profit bank or a short term lender that offers products like payday loans and short term finance options. Despite both banks and credit unions charging interest and account fees, credit unions reinvest those profits back into the products it offers, whereas banks give these profits to their shareholders.
Credit unions aim to promote financial wellbeing within the local area by providing affordable savings and loan products. They are tailored to their local area and even to a specific town in some cases. For example, a credit union based in the State of Florida in a specific town, will act to serve the interests of members in that town, of that state. They create a source of credit facilities and control its members’ funds for the mutual benefit of all members.
How Can I Join a Credit Union in The USA?
Since a credit union is owned by members, you will need to meet eligibility requirements in order to qualify to open an account, apply for a credit card or take out a loan. For example, you may need to live in a certain town or work for a certain eligible employer to be qualified yourself. But other options such as being affiliated with a certain group or having a family member who is already a member may also qualify you as eligible for a credit union.
If you do not meet any eligibility requirements there are other ways you can join. For example, some credit unions will allow you to become a member by joining a participating organization which may require a small fee.
You may also be required to pay a one-time membership fee (typically up to $25) and open an account with a small deposit (generally below $10).
How Do Credit Unions Differ From Banks?
The primary difference between credit unions and banks is that credit unions are non-profit and member-only financial institutions. In contrast, banks are for-profit institutions open to anyone, regardless of their age, employment status or financial circumstances.
Branch access to banks is, of course, typically national and open to anyone while credit unions are often created to serve specific regions, communities or businesses. As a result, credit unions may provide better in-person customer service at their physical branch locations.
However, this may also mean that a smaller selection of products is offered by credit unions than banks. Nonetheless, while credit unions offer fewer products (such as fewer credit card options in comparison to banks) this does not mean less competitive offerings. Credit unions offer great terms as a result of how they reinvest profits into their products.
What Do Credit Unions Offer?
Credit unions in the USA will typically offer some financial products which are not dissimilar to some of those offered by banks and traditional lenders. For example, if you or a family member are a member of a credit union and need to borrow $500, you may well be able to go to your credit union and get a loan. However, because you or your family member are a member of the credit union, you will more than likely get better rates and loan terms than you would otherwise get with another, traditional lender.
Credit unions, although non-profit organizations, do still make money in the form of interest charged on loans to members. Additionally, any savings left in the union can be used to invest and grow further profits for the organization as well in some cases, as their members.
Should You Join a Credit Union?
Despite requiring a membership (which may be a hassle if you don’t meet eligibility requirements) and having fewer product offerings and limited branch locations, there are many advantages to joining a credit union.
Advantages of credit unions include higher interest rates on deposits meaning that you may receive a higher yield on deposits that you make into a credit union account. Additionally, as credit unions are typically smaller and necessitate requirements to join, their fewer customers may receive more personalized customer service.
Credit unions also offer some of the lowest interest rates on credit cards and other financial products as well as offering transfer fees at a lower price than banks.