Unlike banks, credit unions are designed to serve a specific group or community this means there are specific guidelines as to who can and cannot join. In some cases, eligibility to join a certain credit union can be based on where you live, but oftentimes a credit union exists to serve a particular profession, community, alumni, or a religious institution.
It is a widespread belief that most people are not eligible to join a credit union because they do not meet the certain criteria. However, that is not the case because there are so many credit unions.
Regardless of you’re the reason that you are considering changing from a bank to a credit union, the power of inertia can often be the reason that might end up keeping you from moving.
It is this convenience that large-scale banks pride themselves on, features like automatic bill payments, and direct deposit often hinder consumers who are thinking of changing because there is a perception that switching these automatic payments, direct deposits and other financial details can be time-consuming and stressful.
Unlike credit unions, large-scale commercial banks are for-profit institutions that, like any other business, make money from their customers. Credit unions, on the other hand, take a different approach. Like banks, credit unions keep your money and offer services such as savings accounts, loans such, however, unlike banks, they are not for profit organizations and have “members” as opposed to customers. When you open an account at a credit union, you become a member as well as a part owner. Basically, this means you get to vote on the Board of Directors.
Credit unions often also aim to support and better their community through teaching and promoting financial literacy and offering members of their community financial counseling. However, none of this is to say that credit unions aren’t interested in making money.
Let’s be honest, credit unions do not rely on charitable donations like so many other not-for-profit organizations do. They also have to earn enough from loans and investments to pay for their all of their operating expenses. Actually, not only do credit unions have enough to keep the lights on, but when their profits are higher, they also tend to offer their members lower interest rates on loans, and higher rates on savings. Meaning that they are more likely to pass some of their savings and profits back to their members than simply use the money for expanding operations or paying executive bonuses.
While the priorities of credit unions may differ from banks, but they obviously still benefit when they open more accounts and increase their asset – as do their members.
Alright, so you might not be able to see a credit union on every corner, and you definitely will not see a credit union that has as many physical locations as the big banks. However, limited locations may not mean quite as much as you think.
What a lot of people do not realize is that many credit unions partner to offer a shared banking network. This means there are more ATM locations than just the branch, and many of those locations are inside convenience stores like 7-Eleven.This makes getting cash is actually quite convenient, even if you are away from your branch.
It should also be noted that credit union members can often take advantage of a shared banking network without incurring fees, and can perform additional banking services through sister credit unions. Unlike with banks, cooperation like this is part of the cooperative nature of a credit union. Many will also allow members of other credit unions to do their banking at their locations.
Banks are insured by the Federal Deposit Insurance Corporation, also known as the FDIC. Generally, banks have about $250,000 worth of FDIC coverage per customer. Basically, in case the bank fails, your assets are covered by the FDIC.
Credit unions do not have FDIC coverage. This tends to lead a lot of people to think that they are less safe than banks, but that is not true. When you work with a credit union, your deposits are insured by what is known as the National Credit Union Administration (NCUA), which offers the same coverage.
Overall, most credit unions offer the same financial products as a traditional bank, whether you are looking for checking or savings accounts, personal loans, IRAs, or even credit cards. What’s better? Credit unions typically offer better rates and lower fees. And the loans they offer often have better terms.
Traditional banks spend a lot of money on slick advertising campaigns – and they do this in just about every medium. In fact, the financial services industry spends hundreds of billions of dollars every year. And as it turns out, that’s money well-spent.
One reason that consumers stay with large banks rather than switching to credit unions is that we as a society tend to fall prey to the intelligent and smooth marketing, that large banks use. However, if a large bank is not providing you the best deal, it’s worth the effort to move that money to a credit union.
Credit unions do advertise, however, their pockets aren’t nearly as deep as banks. Primarily, that’s because credit unions are member-owned, as opposed to spending money on ads, profits are rolled back into the institution to make loans cheaper.
Because credit unions tend to work on a local level, they rely heavily on local community partnerships, referrals and word of mouth. Some consumers may have the perception that more advertising equals better service, but this theory is not necessarily true.
Regardless of whether they are offering airline miles, cashback deals, discounted hotels, or cash-back, commercial banks have made good use of loyalty programs that keep their customers focused on earning points. But if you are making your financial decisions based on these rewards, you are not seeing the big picture.
Many credit unions offer rewards on debit cards and credit cards, too, and quite a few banks stopped offering debit cards with rewards a few years ago. A number of banks have also stopped discontinued offering free checking accounts.
In some cases, consumers can become so focused on rewards programs that they often miss the fact that the gains from those programs are a lot less than the fees they’re paying to their bank.
When making these decisions, it is imperative that you sit down and do the math, the risks and losses associated with loyalty programs often surprise consumers. The advantages of doing business with a credit union are far more advantageous to consumers in the form of better rates on loans, deposit accounts and lower annual and monthly fees.
If you believe that credit unions may not be as technologically savvy as banks with online and mobile banking, you are one of many. Credit unions have been slow to jump on the bandwagon to aggressively promote their many online and mobile platforms. This applies to both recruiting new members and in promoting the features and benefits to their existing members.
But, in reality, a 2015 CFI satisfaction index showed that credit union members were greatly satisfied with their financial institutions and their banking technology. Banks scored a 79 out of 100 in customer experience versus 87 out of 100 for credit unions.