Understanding the key differences between credit unions and banks can be the best way to decide if you should choose a credit union over a bank and what that choice will mean for you over the course of your relationship with the financial institution.
A credit union is “owned” by its members. There’s less of a banker-and-client relationship and more of a joint-owner and co-owner relationship.
When individuals within a certain demographic or geographic region come together and “buy into” the credit union, their money and their interests take shape in the institution. That is, members of a credit union have a voice in how the financial institution is run, vote on measures, and even serve on the board, representing the community.
Additionally, credit unions generally have noticeably higher rates on the checking, savings, and the money market accounts they offer, with lower rates on loan products, from getting a new credit card to auto and home loans. The way they’re able to manage this is that there’s no structured for-profit hierarchy, and the members are all in it for their mutual benefit.
credit union is a not-for-profit entity that aims to deliver the services of a financial institution using the connectedness and mutual self-interest of people in a group or community.
A bank, on the other hand, is a for-profit, dividends-to-the-investors institution, and the main goal of banks is to make profits and return more and more money each quarter to their investors. This doesn’t usually work out well for the average client, when overdraft fees start compounding and the person behind the account number is forgotten.
Directly related to their desire for making money, banks will offer banking and financial products at a much higher percentage rate so that a profit can be made. They still offer many of the same products, such as checking and savings accounts, credit cards, home and auto loans, among other things, but the interest you’ll pay will be higher than at a credit union, and the annual percentage yield (APY) earned on accounts offered through banks won’t be as high as that of a credit union.
Occasionally, small or regional banks are able to offer lower rates and fees, but generally speaking, credit unions set themselves apart in this.
Credit Union Requirements
There are a few items to be aware of if you’re considering choosing a credit union over a bank. Credit unions operate differently than banks in the way they take on members, specifically in the sense that there are eligibility requirements to join a credit union.
You can often become a member through your employer. Sometimes larger employers or specific industries support a particular credit union, and because you have a workplace relationship with them, that can give you access to their services. There are credit unions that only allow members in certain industries or fields, such as education workers.
Where you live in relation to the credit union can also be a way of joining. If you live in a certain zip code or geographic proximity to a credit union, all you have to do is prove it with a utility bill or something to that effect.
If you have a family member who’s part of a credit union, that’s also usually reason enough to be able to join. The credit union will have the final say in if you’re allowed to join through your family member, as some restrict it to only immediate family members, but it doesn’t hurt to ask.
Lastly, the sort of social and community groups to which you belong might be another path to credit union membership. For example, if you’re a member of a church or philanthropic group or attend a specific college, you could be eligible solely based on your affiliations.
If you meet the criteria, all you need to do is provide a bit of information about yourself and your employer and pay into the organization. Most credit unions charge a small fee of about $5 to “buy” a share in the financial institution.
Beyond the above criteria, joining a credit union is just like joining a bank. You’ll still need state- or government-issued identification, proof of address, and the formal documents.
Is a Credit Union the Best Choice for You?
Most people haven’t really considered joining a credit union because they either don’t know what it is or they don’t think they’ll be eligible to join. In fact, it’s more likely that you’ll meet the requirements and be able to join.
For larger credit unions, such as military ones like Navy Federal, all you need is to have a family member that served in the military in order to become a member. Most people have someone in their family that is currently serving or previously served. If not, there’s still a good chance that there is a credit union close enough to where you live that you would be approved to join just based on your location.
A Few More Items to Consider in Making Your Choice
There are other advantages to take into consideration when deciding whether you should choose a credit union over a bank.
One primary advantage is that you don’t have to just be a customer. You can be a member and own part of the organization. Granted, this may not mean a lot to some, but to others, it’s nice to have a say in the goings-on at the institution that holds their money.
As a member, you’re able to attend the annual meetings and actually vote for who will be on the board of directors. This isn’t a possibility at a bank. You don’t have the opportunity to participate or have any say in the bank or the policies that directly affect you.
You’ll benefit in financial ways that you wouldn’t with a bank. You’ll earn more interest on your accounts and pay fewer fees, and credit unions from around the country have teamed up to build an ATM network to which you have access and won’t be charged fees to use.
Choosing a Credit Union Over a Bank
Most people who opt to join a credit union do so for the lower fees and better interest rates, some for the more personal service and the ability to have a voice in the running of the institution.
If you still have questions, the staff at Rivermark Community Credit Union can help. Please contact us if you have more questions or if you’re interested in becoming a member.