Tired of paying exorbitant bank fees on everything from ATM withdrawals to monthly account maintenance? Want to be earning a better interest rate on your savings account?
It might be time to look into switching to a credit union. A credit union functions a lot like a bank, but it's built on a different business model. One that is, as a general rule, friendlier to customers. That can mean big savings on fees, and better interest rates on both savings and loans.
What is a credit union?
Credit unions are a lot like banks, on the surface.
Credit unions are non-profit financial institutions that do most of what banks do. A credit union can give you a standard savings and checking account, as well as a CD or money market account, They can give customers mortgage or home equity loans, personal loans and car loans.
Credit unions are typically small, local institutions, serving a specific local population. For example, the Massachusetts Institute of Technology's credit union exists to meet the banking needs of MIT's students, faculty and staff. No one else is allowed to join. There are exceptions to the small and local rule, though. Digital Credit Union exists almost entirely online, and serves people from many geographic areas.
How is a credit union different from a bank?
What sets credit unions apart from banks is their non-profit status and their membership requirements. Credit unions are member owned, so they have no shareholders to be accountable to. The only people a credit union needs to make happy are its customers. As a result, they often have better interest rates and lower fees than regular, for-profit banks.
Banks, in contrast, are focused on the bottom line. They're driven by a profit motive, and need to deliver returns to their investors as well as please their customers. These conflicting loyalties can drive up fees and cause other customer-unfriendly policies. As Lifehacker puts it:
As a for-profit organization, [a private bank's] overriding concern is to use their resources as efficiently as possible to maximize earnings. This means that consumers are a means to that end. It does not mean that they do not care about their customers, but it does mean that the first question they must ask is how much income can we extract from our customers without driving those that are profitable to another financial institution.
Credit unions can often also be more flexible than banks in assessing borrowers for loans, and offer a human touch in handling your bank accounts. People who prefer local banks tend to be very happy with credit unions.
Who can join a credit union?
A credit union is open only to members of a certain group, while a bank is generally open the public. Each credit union has its own set of eligibility requirements. Credit unions are required by federal law to restrict their membership base.
To join a credit union, you must be eligible for membership. Examples of membership groups might include all the students and employees at a certain university, or everyone in a certain neighborhood.
Many credit unions have found ways to relax or circumvent these rules by admitting members of specific non-profit organizations. My credit union, for example, is open to any member of my local wildlife society. To join the credit union, I first had to join the wildlife society, paying a $10 membership fee. That made me eligible for credit union membership.
Is a credit union right for me?
Credit unions have a lot to offer, but they're not perfect for everyone. Branch and ATM locations are often limited; however, most credit unions have an online portal that allows you to bank from anywhere you have an Internet connection.
The bottom line in choosing a credit union is the same as it is with a bank: highest interest rates and lowest fees. Choose the institution that will pay you the best interest rate and charge you the least in fees. You want to keep more of your money, and earn the best return on it that you possibly can.
To take find the best interest rates, search this site for the type of account you want. SavingsAccounts.com lists rates for credit unions as well as banks.
If you find a credit union you like, simply check out its member eligibility requirements. Odds are good they have a service organization or group you can join to become eligible for membership.