How a Credit Union Works
A credit union is briefly described as a financial institution controlled and owned by its members. These types of institutions offer plenty of products and services to manage your finances while providing additional products, such as personal loans. Credit unions act as smart alternatives to banks when it comes to entrusting an organization to manage your finances.
To paint a bigger picture, we've outlined below what makes up a credit union and some of the benefits that come with them.
How a Credit Union Works
What sets credit unions apart from other financial institutions is that when you decide to open an account, you’re regarded as a member and not a patron. Secondly, the credit union's profit is invested into the company or paid out to the members in the form of better rates or higher rewards, for example. Because of this, credit unions are classified as not-for-profit organizations, giving them different federal regulations and allowing them to offer more of a personalized experience toward their members.
When we refer to credit unions as "not-for-profit," it means they don’t distribute gains to owners but they do still exist to meet organizational objectives. Not to be confused with “non-profit,” where the work being completed is in an attempt to promote an overarching charitable goal. In a credit union, member needs are the priority, with some even granting members a say in which individuals get a seat on the board of directors.
History of Credit Unions
The credit union's history in the U.S. can be traced back to 1909, when the first detailed credit union law was passed. That was the Massachusetts Credit Union Act of 1909, which became the basis for the general provisions expressed in the 1934 Federal Credit Union Act (FCUA).
Early origins of credit unions can be traced back to the 1850s when German politician and economist, Franz Hermann Schulze-Delitzsch, helped to create the founding principles they stand on today. A decade later, Friedrich Wilhelm Raiffeisen successfully implemented the idea in rural Germany and over the next few decades, the credit union model would continue to expand across the globe.
In 1934, a national association for credit unions was founded in the United States. The Credit Union National Association, CUNA, would eventually see a successful vote for further expansion in countries outside of North America. The concept has since grown and has brought numerous benefits with it.
Benefits of Using Credit Unions
Members can take advantage of a host of benefits when joining a credit union, such as:
- Checking Account Perks – Most credit unions offer free checking and lower fees on basic transactions when compared to banks. Overdraft charges and ATM withdrawals are some of the services that come at lower fees for credit union members.
- Quicker Loan Approvals – Dependent on a member’s credit history, credit unions can oftentimes offer competitive rates with very quick approval times.
- Lower Balance Requirements – For most credit unions, unlike banks, there are lesser restrictions on balance requirements.
- Fewer Fees – Credit unions tend to enforce considerably less fees on popular banking products such as auto loans, credit cards, and savings accounts to name a few.
- Superior Customer Service – Because credit unions live to serve the surrounding community and the members that it encompasses, there’s extra emphasis placed on total member experience in-branch and remote.
Services Available at Credit Unions
- Share Draft Account – Similar to your normal checking account at a bank, this account grants you direct access for everyday transactions. Funds may be accessed in a multitude of ways such as through ATMs, online transactions, debit card, electronic & paper checks, etc…
- Share Accounts – The term “share” refers to your share of ownership in the credit union and operates identical to that of a traditional savings account.
- Loans – Credit unions may offer numerous loan options when you need funds readily available. The sort of loan products commonly available include mortgages, personal loans, credit cards, and auto loans with a host of subcategories to better suit your needs.
- Business Banking – Proper handling of finances can help ensure your business runs smoothly. With a credit union, you can have access to services like business checking, savings, credit cards, and treasury management.
Gaining Member Eligibility
You can only join a credit union if you meet its eligibility requirements. Fortunately, most credit unions have broad requirements that make joining a smooth process.
Depending on the organization, an easy route to take in gaining eligibility is through the company you work for – often regarded as an employee benefit in most situations. This is mostly a cause of local businesses partnering with the regional-based credit unions, allowing their employees to join. And once you become a member, your account remains accessible even if you’re no longer employed by the company that made eligibility possible.
Other requirements may include living within a credit union’s designated service area but you can also check for credit unions that offer membership to certain donors, students at a particular university, or religious congregations.
If none of the options discussed above are available to you, knowing a family member who is a credit union member may be useful. Most credit unions will allow you to join if your family member meets the eligibility requirements.
Opening an Account
Take note of the eligibility requirements provided in the previous section and also take time to review the policies listed by a credit union of interest. Additional requirements like the amount you should deposit will be discussed upon opening the account.
Some documents you need to present are a valid photo ID, Social Security number, and a current address. In some instances, you need to show proof of residency.
Joining a credit union integrates you within a community that shares like-minded goals for your finances. The institution's main objective is to help you maintain, manage and grow your money while seeing that you make continuous progress toward your financial goals. MIDFLORIDA Credit Union provides friendly banking services with a personal touch, across the state of Florida. Reach out to us today and learn more about our available services and steps to take in becoming a new member!