Credit unions can be a good place for your finances, especially when it comes to loans. Unlike banks, they are nonprofits owned by their members so they can be more flexible in the interest rates they charge. If you’re looking into joining a credit union, consider your priorities to determine if it could be the best option for you.
The Pros
Better interest rates on loans
Credit unions typically offer higher saving rates and lower loan rates compared to traditional banks. If you have high-interest loans and are falling behind on your monthly loan payments, lowering that amount can make it easier to keep up. This is a great way to get back on track if your credit has been suffering.
High-level customer service
People generally come before profits when it comes to most credit unions, because anyone who joins one is considered a member rather than a customer. Members receive personalized service and a high-level customer service experience. As a valued credit union member, you can expect respect and care no matter where you stand financially.
Lower fees
Since credit unions don’t pay federal taxes, they usually charge lower fees. They also have fewer fees than banks.
A variety of services
When joining a credit union, be sure to check the services they offer. Many credit unions offer services similar to those offered at banks such as:
- Checking and savings accounts
- Credit cards
- Mortgage loans
- Consumer loans
- Vehicle loans
- Money transfers
- Online banking
- Financial literacy resources
If you’re looking to build credit and save money, joining a credit union might be worth looking into. However, it’s important to also be aware of the downsides that come with it.
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The Cons
Cross-collateralization
Credit unions have more latitude than banks to collect unpaid loans. This is due to a concept called cross-collateralization. Let’s suppose you have your mortgage, credit card and checking account at the same credit union. If you were to fall behind in payments on the credit card, the credit union could take the money out of your checking account, which could cause your mortgage check to bounce.
In comparison, a traditional bank must get a court order before taking money from either your checking or savings account tocover a delinquent loan – even if both the checking account and loan are at the same bank.
This suggests it might be prudent to keep your checking and savings accounts at a bank and your credit card, auto loan or mortgage at a credit union. This way, your checking account won’t be cross-collateralized with your debts (credit card and mortgage). This will protect you from the danger of having money taken out of your checking account to pay an auto loan or mortgage.
Fewer branches, ATMs and services
Generally, credit unions also have fewer branches and ATMs than banks. However, some credit unions have offset this weakness by joining networks of surcharge-free ATMs.
Some credit unions are not insured. While the National Credit Union Administration insures accounts up to $100,000 for many credit unions, there are still some that remain unprotected. Some credit unions do not offer as many services as banks so it’s important to learn what they offer before opening an account or applying for a loan.
The biggest negative
The biggest con to credit unions is that in some cases you must be a member of a specific group of people in order to join. For example, the employees of the Public Service Company (a supplier of electric power) founded the Public Service Credit Union. For many years you had to be an employee of the company to join the credit union. However, many credit unions (including this one) have now opened their membership to just about everyone. Before you leap in, it would pay to make sure you can join the one you’ve chosen.
Is it better to belong to a credit union or a bank?
When choosing between a credit union or a bank, consider what’s most important to you. If lower fees and better rates are the most important factors, a credit union may be the right choice. However, a bank might be a better option if you’re looking for more convenient access to your finances.
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FAQs
The pros of credit unions include better interest rates than banks, while the cons include fewer branches and ATMs.
Which of the following is a downside for credit unions? ›
Choosing to use a Credit Union
The downside of credit unions include: the eligibility requirements for membership and the payment of a member fee, fewer products and services and limited branches and ATM's.
What are the pros and cons of using a credit union vs a large national bank? ›
Credit unions tend to have lower interest rates for loans and lower fees. Banks often have more branches and ATMs nationwide. Many credit unions have shared branches and surcharge-free ATMs provided through the CO-OP Shared Branch network. Banks have historically had better technology online and for mobile apps.
Why do banks not like credit unions? ›
First, bankers believe it is unfair that credit unions are exempt from federal taxation while the taxes that banks pay represent a significant fraction of their earnings—33 percent last year. Second, bankers believe that credit unions have been allowed to expand far beyond their original purpose.
What are the pros and cons of banks? ›
In conclusion, traditional banking offers a range of advantages such as personalized customer service, physical branches, and a sense of security and trust. However, it also has its drawbacks, including potential fees, limited accessibility, and lengthy processes.
What are the benefits of credit unions? ›
Lower fees and higher interest rates on savings are just a few of the typical advantages of working with a credit union. But before you leave your bank, make sure to research the credit unions in your area. Not all credit unions are the same.
Are credit unions failing like banks? ›
Experts told us that credit unions do fail, like banks (which are also generally safe), but rarely. And deposits up to $250,000 at federally insured credit unions are guaranteed, just as they are at banks.
Are credit unions safe from failing? ›
Like banks, which are federally insured by the FDIC, credit unions are insured by the NCUA, making them just as safe as banks. The National Credit Union Administration is a US government agency that regulates and supervises credit unions.
What is a threat to credit unions? ›
Cyberattacks are one of the greatest threats financial institutions face. The average financial security breach costs approximately $5.97 million. For credit union cybersecurity, this means keeping up to date with the latest cyber solutions is critical to protecting member data and their good name.
Why do people prefer credit unions over banks? ›
People choose banks primarily because of the convenience of multiple branches across the country, along with better technology. On the flip side, people choose credit unions primarily because of discounted loan rates, higher interest rates and better customer service.
Just like banks, credit unions are federally insured; however, credit unions are not insured by the Federal Deposit Insurance Corporation (FDIC). Instead, the National Credit Union Administration (NCUA) is the federal insurer of credit unions, making them just as safe as traditional banks.
What is the biggest benefit of using a credit union? ›
The main benefits of a credit union vs. a bank are that credit unions tend to offer better rates and customer service, lower fees, and a national network of ATMs. However, a bank may offer more branches and products than a credit union.
Why are credit unions bad? ›
With a credit union, you might have to do some extensive research to compare accounts and find out what services they offer. Credit unions only serve certain groups of people and if the ones you can join don't have mobile banking or their apps aren't up to par, that could potentially be a major disadvantage.
Should I be worried about credit unions? ›
Money held in credit union accounts is insured through the National Credit Union Administration (NCUA). Many types of accounts are covered by insurance such as checking, savings, certificates of deposit, money market accounts, and others.
What can banks do that credit unions cannot? ›
More financial products and services: Banks offer a variety of products and services, while credit unions tend to stick with a few core offerings, such as deposit accounts, credit cards and loans. Many banks provide investment accounts and financial advisory services in addition to standard banking products.
Is a credit union a good idea? ›
Because they don't have to pay profits to shareholders as banks do, credit unions often can pass that money on to their members, by offering higher APYs on savings accounts and CDs and lower APRs on loans. Credit unions offer some of the best checking accounts, high-yield savings accounts, and CD rates.
Is it better to have a credit union or bank account? ›
If you want higher deposit rates and don't need access to branches across the country, for example, you might prefer a credit union. If you want access to in-person services and don't mind lower interest rates, a bank might be more suitable.
