Why Choose a Credit Union Over a Bank?

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Millennial Money has partnered with CardRatings and creditcards.com for our coverage of credit card products. Millennial Money, CardRatings and creditcards.com may receive a commission from card issuers. This site does not include all financial companies or financial offers.

Most people don’t typically think about credit unions until they’re approached by one through a community organization or employer. 

After all, credit unions are invite-only, and you have to be affiliated with a group or company to obtain access to one. 

This post explores the main advantages of joining a credit union instead of working with a regular bank.

The advantages of using credit unions 

1. Higher savings rates

Credit unions offer much higher interest rates than you’ll find with regular banks, making them a great option for short to medium-term holding. 

For example, at the time of writing, leading credit union Alliant offers a savings plan that comes with a 0.55% annual percentage yield (APY) with monthly dividend periods. Compare this with TD Bank’s Beyond Savings plan, which offers 0.15%. 

As you can see, the Alliant plan offers a much greater monthly return, on par with most high-yield savings accounts from online banks and other financial services companies. 

Simply put, traditional financial institutions are not known for offering stellar interest rates on savings plans.

2. Better interest rates on loans 

In addition to benefiting from higher interest savings plans, customers can also potentially access loans with lower interest rates. 

Credit unions are customer-centric, and the majority of their returns go directly into their services and to their customers. As such, they’re able to provide lower loan rates for customers, making them a much better option for personal loans and mortgages. 

3. Lower fees

National banks are known for higher fees. They usually tack on hefty monthly maintenance fees, annual fees, and service fees for deposit accounts.

Credit unions typically bypass the fee that large banks charge, providing a banking service that is much friendlier for customers. If you don’t like dealing with big banks’ excessive fees, consider working with a credit union.

Credit unions are member-run. As a result, they tend to be more invested in local communities.

Credit unions often donate to local charities and school systems and provide emergency support or better benefits to local community members. So, if you’re a community-centric individual, you can feel good about joining a credit union and working with an organization that is committed to furthering things that matter to you.

5. NCUA protection

In addition to the above-mentioned benefits, most credit unions often receive the same federal insurance protection that banks receive. It’s just a different organization that oversees it. 

While banks receive protection through the Federal Deposit Insurance Corporation (FDIC), credit unions usually come with support through the National Credit Union Administration (NCUA). 

Both organizations protect member accounts with up to $250,000 in coverage, giving you the same protection for your personal finances. 

The likelihood of a credit union or bank going under may seem like a trivial matter, but this is a critical protection for customers. Federal-backed security is one of the top reasons customers choose to put their money into banks instead of putting all their holdings into the stock market or stashing cash assets at home.

Just make sure to check about insurance before joining a credit union, since not all unions are federally insured. 

6. Physical branches

Many traditional banks are either completely online or have limited branch locations for customers. This can be frustrating for people who like to have a shared relationship with their local bank.

The idea of having a trusted relationship with a bank may seem like an outdated concept. But many people enjoy the feeling of working with a trusted financial representative. 

It can also feel more secure having a dedicated manager overseeing your personal accounts, instead of storing all your money in an online organization where you have no personal connections.

Credit unions offer local branch locations for customers, meaning you can benefit from having a financial representative to work with you and help guide your decisions. 

Of course, many also offer online banking, too. 

7. Exclusive access

Not everyone can join a credit union. That being the case, joining one can feel like being part of an exclusive club. 

Organizations sometimes offer them as incentives for participating or working together. So there is a sense of pride and exclusivity to joining a credit union, knowing that you have access to a financial group that is apart from the general public.

Disadvantages of credit unions

As you can see, credit unions offer a lot of advantages for members. However, they’re not always the best options for customers. 

Here are some disadvantages to joining credit unions. 

1. Fewer options

Most leading banks offer an abundance of services, with many types of checking and savings accounts and credit cards to choose from. Some banks even offer brokerage accounts and retirement accounts for investing. 

Credit unions usually offer a more limited selection of options. You may only have a few different accounts to choose from, depending on how robust your group plan is. 

Granted, there’s nothing stopping you from joining a bank and a credit union at the same time. You are legally allowed to open as many accounts as you want in your name. 

The only downside is that it’s more accounts to look after. Since some accounts may have high maintenance fees, you’ll definitely want to check the details before starting an account.

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2. Membership fees

One minor disadvantage to joining a credit union is that you’ll most likely have to pay a membership fee to gain access. 

In addition, you may have to come up with a minimum balance to open an account at a credit union. Some credit unions may require you to have $100 in savings to open an account, for example. 

Keep in mind that most membership fees for credit unions are very small, between $5 and $30. And while some credit unions require you to have a minimum amount at opening, they may not have a minimum balance requirement to keep the money in the account. 

For the best results, check each service and take it on a case-by-case basis. 

3. Fewer promotional incentives

Credit unions tend to offer fewer promotional incentives. For example, they don’t usually have referral bonuses or sign-up bonuses.

However, since credit unions typically run lean operations with limited budgets, it enables them to give more back in terms of lower fees and better interest rates. 

It’s far better to work with an organization that rewards you with better rates instead of a company that wastes money on promotional incentives that don’t actually help customers all that much in the long run.

Learn more:

How credit unions are different from banks

Credit unions are similar to banks, as they both offer standard financial products like free checking accounts, savings accounts, money market accounts, certificates of deposit (CDs), and online and mobile banking. Local credit unions may also issue preferred auto loans, personal loans, and mortgage loans.

When you join a bank, you’re a customer, which means you basically have to follow their rules. However, opening a bank account through a credit union is a bit different, as members share ownership in the institution. 

In fact, credit unions are often called coops and are set up as non-profits. Banks, on the other hand, are for-profit organizations. 

As a result, members are allowed to cast a vote for the board of directors. This can directly impact the direction of a credit union, like the services they offer to members. 

For example, you may vote for an individual who backs providing a higher interest checking option for credit union members. Or you may vote against it to put that money into a different cause. 

This level of control may seem like a small thing. But it’s actually incredibly powerful. When you work with a credit union, you have a much stronger voice than a regular banking customer. What’s not to like about that?

Frequently Asked Questions

Do credit unions offer ATM access?

Most credit unions provide checking and savings accounts with debit cards, enabling members to use them at distributed ATMs. 

Just keep in mind that some banks may charge non-affiliated customers high fees for using their ATMs. Make sure to check the details of your credit union program before trying to use a debit card at another bank’s ATM. Otherwise, you could wind up paying hefty service charges to access your money.

Can credit unions be lenders?

Credit unions often issue preferred loans with great interest rates for members, making them an excellent choice when you need something like a car loan or home loan.

When shopping for a loan, it’s a good idea to compare different rates and visit with various lenders to assess your options. 

Don’t feel pressured to take a credit union loan just because you work with them. Explore the market and look for a loan that suits your needs.

As a best practice, you should always have a strong reason for taking out a loan in your name. Don’t take out loans just for the sake of accessing quick money. 

Have a purpose for using the money, and be smart about making payments. For example, you may request a loan to consolidate credit card debt or start a small business. 

Are credit unions for-profit institutions?

Credit unions are non-profit organizations. Unlike banks, credit unions give money back to customers in the form of better interest rates and lower-cost loans. On the other hand, retail banks primarily serve their shareholders before customers. 

Do credit unions offer credit cards?

Some credit unions offer credit cards, which may come with lower fees and lower interest rates than other cards. However, you’re most likely not going to get the same incentives and rewards from a credit union that you’ll find at a leading financial provider like Discover or Capital One. 

Explore the market and assess all your options before selecting a credit card. 

The Bottom Line

Simply put, there are numerous reasons to work with credit unions. 

This type of financial institution is not accessible to the general public. So, if you’re invited to one through work or community organization, you should strongly consider joining. You can potentially access better rates and gain a trusted local banker in the process. Not bad!

At the same time, nothing is preventing you from working with another financial provider. So, you can be strategic about where you put your money. 

For example, you may have a checking or savings account through a credit union, a high-yield savings account from an online bank like Ally, and a brokerage account through a provider like Schwab. You may even have access to multiple credit unions through various organizations that you’re a part of.

At the end of the day, there’s nothing wrong with using a credit union. If you decide to take this option, it could be one of the best personal finance decisions you make — particularly if you’re able to obtain a low-interest mortgage because of it.

So what do you think? Is it time to start investigating credit unions, or are you happy to bank with a traditional provider? Only you know the answer to that question, and I trust you’ll make the right decision.

Additional Disclosures: Millennial Money has partnered with CardRatings and creditcards.com for our coverage of credit card products. Millennial Money, CardRatings and creditcards.com may receive a commission from card issuers. This site does not include all financial companies or financial offers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.