Credit unions can be a good place for your finances, especially when it comes to loans. Unlike banks, they are nonprofits owned by their members so they can be more flexible in the interest rates they charge. If you’re looking into joining a credit union, consider your priorities to determine if it could be the best option for you.
The Pros
Better interest rates on loans
Credit unions typically offer higher saving rates and lower loan rates compared to traditional banks. If you have high-interest loans and are falling behind on your monthly loan payments, lowering that amount can make it easier to keep up. This is a great way to get back on track if your credit has been suffering.
High-level customer service
People generally come before profits when it comes to most credit unions, because anyone who joins one is considered a member rather than a customer. Members receive personalized service and a high-level customer service experience. As a valued credit union member, you can expect respect and care no matter where you stand financially.
Lower fees
Since credit unions don’t pay federal taxes, they usually charge lower fees. They also have fewer fees than banks.
A variety of services
When joining a credit union, be sure to check the services they offer. Many credit unions offer services similar to those offered at banks such as:
- Checking and savings accounts
- Credit cards
- Mortgage loans
- Consumer loans
- Vehicle loans
- Money transfers
- Online banking
- Financial literacy resources
If you’re looking to build credit and save money, joining a credit union might be worth looking into. However, it’s important to also be aware of the downsides that come with it.
People Also Read
Financial Education
The Six Biggest Money Myths: Busted
Financial Education, Financial Wellness
Monthly Money Makeover: Zero by 30 Challenge
The Cons
Cross-collateralization
Credit unions have more latitude than banks to collect unpaid loans. This is due to a concept called cross-collateralization. Let’s suppose you have your mortgage, credit card and checking account at the same credit union. If you were to fall behind in payments on the credit card, the credit union could take the money out of your checking account, which could cause your mortgage check to bounce.
In comparison, a traditional bank must get a court order before taking money from either your checking or savings account tocover a delinquent loan – even if both the checking account and loan are at the same bank.
This suggests it might be prudent to keep your checking and savings accounts at a bank and your credit card, auto loan or mortgage at a credit union. This way, your checking account won’t be cross-collateralized with your debts (credit card and mortgage). This will protect you from the danger of having money taken out of your checking account to pay an auto loan or mortgage.
Fewer branches, ATMs and services
Generally, credit unions also have fewer branches and ATMs than banks. However, some credit unions have offset this weakness by joining networks of surcharge-free ATMs.
Some credit unions are not insured. While the National Credit Union Administration insures accounts up to $100,000 for many credit unions, there are still some that remain unprotected. Some credit unions do not offer as many services as banks so it’s important to learn what they offer before opening an account or applying for a loan.
The biggest negative
The biggest con to credit unions is that in some cases you must be a member of a specific group of people in order to join. For example, the employees of the Public Service Company (a supplier of electric power) founded the Public Service Credit Union. For many years you had to be an employee of the company to join the credit union. However, many credit unions (including this one) have now opened their membership to just about everyone. Before you leap in, it would pay to make sure you can join the one you’ve chosen.
Is it better to belong to a credit union or a bank?
When choosing between a credit union or a bank, consider what’s most important to you. If lower fees and better rates are the most important factors, a credit union may be the right choice. However, a bank might be a better option if you’re looking for more convenient access to your finances.
Content Disclaimer:
The content provided is intended for informational purposes only. Estimates or statements contained within may be based on prior results or from third parties. The views expressed in these materials are those of the author and may not reflect the view of National Debt Relief. We make no guarantees that the information contained on this site will be accurate or applicable and results may vary depending on individual situations. Contact a financial and/or tax professional regarding your specific financial and tax situation. Please visit our terms of service for full terms governing the use this site.
FAQs
The pros of credit unions include better interest rates than banks, while the cons include fewer branches and ATMs.
Is it better to have a bank or a credit union? ›
The Bottom Line. Credit unions can be ideal for a low-interest loan, lower mortgage closing costs, or reduced fees, but you'll need to qualify for membership. Larger banks may offer you more choices regarding products, apps, and international or commercial products and services, and anyone can join.
Why do banks not like credit unions? ›
For decades, bankers have objected to the tax breaks and sponsor subsidies enjoyed by credit unions and not available to banks. Because such challenges haven't slowed down the growth of credit unions, banks continue to look for other reasons to allege unfair competition.
Which of the following is a downside for credit unions? ›
Choosing to use a Credit Union
The downside of credit unions include: the eligibility requirements for membership and the payment of a member fee, fewer products and services and limited branches and ATM's.
Is a credit union a good idea? ›
There are many benefits of credit union membership.
Unlike banks, credit unions are owned by the members they serve. This means that any profits can pay off for credit union members in the form of lower fees and higher savings rates.
Is your money safer in a credit union? ›
The Federal Deposit Insurance Corporation (FDIC) provides insurance for bank deposits, and the National Credit Union Administration (NCUA) does the same for credit unions. Whether you choose a bank or credit union to deposit and hold your money, your funds are generally safe.
Why should I switch to a credit union? ›
Better rates
According to a study by Informa Research Services, credit unions have lower average rates on credit cards, auto loans, personal loans, and home equity lines of credit. In addition, credit unions have higher average return rates on personal savings, checking, money market, and 1-year certificate accounts.
What's the best credit union to join? ›
Here are some of the country's top credit unions:
- Alliant Credit Union. Alliant offers an above-average interest rate for savings. ...
- Consumers Credit Union. ...
- Navy Federal Credit Union. ...
- Connexus Credit Union. ...
- First Tech Federal Credit Union.
Does joining a credit union build credit? Joining a credit union can help build credit, provided you follow the right steps. For example, if you join a credit union with bad credit, you may want to consider getting a secured credit card to improve your credit score. This is also an option if you're new to credit.
Can a credit union crash like a bank? ›
Experts told us that credit unions do fail, like banks (which are also generally safe), but rarely. And deposits up to $250,000 at federally insured credit unions are guaranteed, just as they are at banks.
Like banks, which are federally insured by the FDIC, credit unions are insured by the NCUA, making them just as safe as banks.
Are credit unions safe during a banking crisis? ›
Credit unions are insured by the National Credit Union Administration (NCUA). Just like the FDIC insures up to $250,000 for individuals' accounts of a bank, the NCUA insures up to $250,000 for individuals' accounts of a credit union. Beyond that amount, the bank or credit union takes an uninsured risk.
What is a threat to credit unions? ›
Cyberattacks are one of the greatest threats financial institutions face. The average financial security breach costs approximately $5.97 million. For credit union cybersecurity, this means keeping up to date with the latest cyber solutions is critical to protecting member data and their good name.
What are the top credit union issues? ›
Top 10 Challenges Facing Credit Unions
- Digital & AI Transformation.
- Regulatory Compliance.
- Cybersecurity.
- Competing with Larger Banks & FinTechs.
- Membership Growth & Awareness.
- Aging Membership.
- Talent Acquisition and Retention.
- Expanding Services.
The challenges faced by credit unions often revolve around resource optimization. Smaller budgets and limited staff can strain operational efficiency.
What is the main downside to opening an account at a credit union? ›
Credit union disadvantages
Membership may require meeting certain work, residential or occupational requirements. Many typically offer branches only in a limited area or region.
Are credit unions safer than banks during a recession? ›
bank in a recession, the credit union is likely to fare a little better. Both can be hit hard by tough economic conditions, but credit unions were statistically less likely to fail during the Great Recession. But no matter which you go with, you shouldn't worry about losing money.
Is it better to have a credit card with a credit union? ›
By now, we know that applying for a credit card with a credit union rather than a bank will often result in lower interest rates and fewer fees.
