What is a Credit Union?
Credit unions are financial institutions, like banks, that offer a broad range of financial solutions for their customers. But, unlike banks, credit unions are cooperative institutions, owned by their members. They're not-for-profits, providing a secure place to save and offering reasonable rates.
Differences Between Banks and Credit Unions
There are characteristics that separate banks and credit unions. To get the best for your circumstances and financial objectives, it's important to distinguish the differences between them.
Banks are owned by investors and are for-profit institutions. You can have accounts with a bank but won't have a voice in procedures or operations.
Credit unions are member-owned. That means customers who use the services, whether for personal accounts or business accounts, have some involvement in the institution's operations. Because they're not-for-profit organizations, credit unions can offer additional benefits in the form of lower rates on loans and higher yielding rates with savings products.
While we've determined key differences, additional distinctions include:
- Deposits to credit unions are insured by the National Credit Union Administration (NCUA), while banks are insured by the Federal Deposit Insurance Corporation (FDIC).
- Banks can be nationally or regionally based. Credit unions almost always tend to be local.
- Credit unions orient themselves more toward the needs of their members, not investors.
Benefits of a Credit Union
Because banks can be nationally or regionally based, they have the ability to host plenty of physical branch and ATM locations. Credit unions focus on community-oriented services like helping members buy their first homes or providing loans for small businesses. All are funded by member accounts.
Other benefits of credit union membership include:
- Personalized customer service: Being not-for-profit gives credit unions a lot more leeway with customized financial needs for members.
- Higher interest rates on savings: Products like savings accounts and CDs are eligible for higher interest rates as opposed to for-profit banks.
- Lower fees: Credit unions tend to offer lower fees.
- Lower loan rates: APRs are typically lower compared to banks.
- Community focus: There are usually requirements to become a member, such as living within the area of service or working for a common organization.
- Voting rights: Credit union members have the opportunity to vote on important corporate decisions, including choosing board members.
- Insured deposits: The National Credit Union Administration (NCUA) is a government-backed insurer for federal credit unions and some state credit unions.
Unlike conventional banks, credit unions provide services as a cooperative, encouraging the betterment of all members and communities. Being not-for-profit can grant them this greater freedom to prioritize their members as they aren't strictly obligated to the needs of their stakeholders.
Credit unions tend to have a smaller geographic footprint with fewer branches. That's often because credit unions are more locally focused, but not having access to a branch doesn't limit you. There are many institutions that have ATMs offering fee reimbursements should you use another institution's ATM. Additionally, more than 5,000 credit union branches have united to create the CO-OP Financial Services Shared Branching network, granting members the ability to bank at credit union branch locations outside of their own.
The foundation for most credit union branches is their ability to cater to specific geographic locations, educational institutions, businesses, nonprofit organizations like churches, or homeowner associations, and these organizations' employees. Credit unions also offer services to multiple groups and relatives of members.
Membership requirements can vary from credit union to credit union, so it's best to speak with a team member of the organization to learn more.
Higher savings interest rates and lower banking fees are just some of the benefits offered when partnering with a credit union. Many memberships can start through interaction in the same geographic area, making credit unions widely accessible to members of a community. Here at MIDFLORIDA, we require that you live, work, worship, or attend school within our service area, which spans almost the whole state of Florida!
Like any financial partnership, it's a good idea to research a credit union and its offerings because not all are the same. Check out fees, rates, and accessibility to ensure you're putting yourself, and your finances, in the right environment.
MIDFLORIDA Credit Union provides friendly credit services with a personal touch across Florida. Reach out to find out more about our services.