The Pros and Cons of Credit Unions
Written by
Jacob Wade
Edited by
Elizabeth Constantineau
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Choosing between a credit union and a traditional bank comes down to the services offered, the benefits available and the importance you place on banking location. Both banks and credit unions offer checking and savings accounts, loans and other financial products. But it’s important to understand the pros and cons of credit unions to make an educated choice about where to manage your finances.
Keep reading to learn about what makes credit unions great and some things to consider before choosing one.
What Is a Credit Union?
A credit union is a not-for-profit financial institution that accepts deposits, provides loans and offers other financial products for consumers and businesses. Credit unions provide similar services to traditional banks but usually with far lower fees and better interest rates.
Because credit unions are member-owned and don’t make a profit, any excess revenue the credit union earns is usually poured back into member benefits in the form of low fees, low rates on loans and better interest rates on deposit accounts.
Credit union deposits are insured by the National Credit Union Administration (NCUA) up to $250,000 per depositor. This is similar to Federal Deposit Insurance Corporation (FDIC) insurance offered by traditional banks and is also backed by the full faith and credit of the United States government.
Pros of a Credit Union
There are quite a few advantages of credit unions and they might make a great choice to replace your bank. Here’s why:
- Member-owned: Credit unions are owned by members and are not-for-profit institutions. This leads to more benefits for members and lower costs all around.
- Better rates: Credit unions usually offer higher interest rates on savings accounts and lower rates on loans and credit cards. This means more passive income for members and savings on loan products.
- Very low fees: Credit unions typically offer lower fees than traditional banks and cut out monthly maintenance fees, minimum balance fees and ATM fees. This leads to savings for members all around.
- Community involvement: Credit unions are community-oriented, focusing on the financial well-being of their members and the local community.
- Co-op branches: Most credit unions are part of a shared Co-op that offers banking services around the U.S. at other credit union branches — allowing you to cash checks, withdraw cash and other basic services in-person.
Cons of a Credit Union
While credit unions have a lot going for them, they aren’t the right fit for everyone. Here are some disadvantages of credit unions:
- Not many locations: Many credit unions are hyper-local — meaning there are only a few branches that service a specific area. And while the credit union Co-op offers some shared banking services at other credit unions across the country, access may be limited.
- Membership requirements: Credit unions require membership and some restrict who can join based on where you work or what organizations you are affiliated with.
- Technology and services: Credit unions may not offer the same level of technology, such as mobile banking apps or advanced online services, as larger banks.
- Variety of financial products: There might be a more limited selection of financial products compared to larger banks, which could affect those looking for a wide range of investment or loan options.
- Membership fees: Some credit unions charge a small fee to join membership.
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Membership Requirements
Credit unions require membership to open an account. Requirements to join a credit union vary, but may include:
- Working for a supported company or branch of government
- If you are a family member of another credit union member
- Living in a specific location where the credit union services
- Member of a group or association, such as a place of worship or labor union
You’ll need to submit proof of your association or workplace before joining as a member. You may also need to pay a small fee for joining — typically $10 or less. This deposit is held in your account, or donated to a specific cause supported by the credit union itself.
Credit Unions and Loan Products
Credit unions offer loans and credit cards to fit a variety of financial needs. Here’s how they stack up.
Auto Loans
Credit unions usually offer auto loans on new and used vehicles with competitive rates and terms available. Many credit unions offer lower rates than traditional banks — since credit unions are not-for-profit and don’t need high rates to make money.
Some credit unions also offer car-buying assistance services through partners, and may offer cash back or other incentives to get an auto loan through them.
Mortgage Rates and Terms
Most credit unions offer home mortgages, including refinancing and home equity loans. As with other loan products, credit unions usually offer low rates and minimal fees when originating a mortgage loan.
Similar to a traditional bank, most credit unions offer 15- and 30-year mortgages, but you may also be able to get custom loan terms depending on your credit union.
Personal Loans and Credit Cards
Some credit unions offer unsecured personal loans and credit cards. Again, the rates and fees on these products are typically much lower than a traditional bank. But most credit cards from a credit union offer limited rewards (if any) and not many extra perks.
Safety and Security of Your Money
Credit union deposits are protected by the NCUA. Deposits are insured by the Shared Insurance Fund (SIF), which is backed by the full faith and credit of the U.S. government.
Deposit insurance covers up to $250,000 in combined deposits across all accounts, per depositor. This means a joint account offers $250,000 in protection for both parties — resulting in $500,000 of protection.
NCUA insurance is nearly identical to FDIC insurance. The FDIC also covers up to $250,000 per depositor and is backed by the U.S. government.
Technology and Accessibility
Credit unions offer online and mobile banking — through credit union websites and apps may be a bit lacking compared to traditional banks. Most credit unions offer mobile banking for both iOS and Android phones. You can deposit checks, transfer funds, check balances and make payments.
The accessibility and technology of credit unions will vary by location, but some bigger credit unions with a larger base of members offer the latest in access and mobile apps.
Comparing Credit Unions to Traditional Banks
Credit unions and traditional banks both offer many of the same services but operate a bit differently. If you’re figuring out how to choose a credit union vs. a bank, it’s important to compare features between the two to decide which works best for you. Here’s how credit unions and banks compare.
Interest Rates
Credit unions typically offer lower interest rates than traditional banks on loan products and credit cards — while also offering higher rates on savings and CD accounts. Part of this is due to the not-for-profit model that credit unions operate under. By not pursuing profits, excess revenue is used to keep rates competitive.
Customer Service
Credit unions usually offer limited customer support with phone and email access available during business hours only. But many large traditional banks offer 24/7 customer service via phone, email, chat, social media and in-person during business hours around the U.S.
Product Offerings
Credit unions usually offer many familiar banking services, such as savings and checking accounts, auto loans and mortgages and credit cards. But banks may offer far more services including full-service investing, financial planning and commercial banking services.
Accessibility and Convenience
Both credit unions and traditional banks offer access to your accounts online and through mobile apps. But credit unions usually have only a few in-person banking locations, while traditional banks may have thousands of locations around the U.S. and the globe. Credit unions and traditional banks both offer large networks of fee-free ATMs — with credit unions having over 30,000 shared ATMs as part of a Co-op.
Final Take
It’s important to review all the pros and cons of credit unions before deciding where to bank. If you prefer lower rates on loans and lower fees — a credit union may be a good fit. But if you prefer in-person banking and nationwide access to services, a larger traditional bank may be a better choice. Understanding the full range of pros and cons of credit unions will aid in making a well-informed decision about where to open your bank account. Remember, the best choice depends on your individual financial needs and lifestyle preferences.
FAQ
Here are the answers to some of the most frequently asked questions regarding credit unions.- Do credit unions have online and mobile banking?
- Most credit unions offer online banking through the bank’s website and also offer mobile banking through Android and iOS apps. While credit union apps may not have all the bells and whistles of a big bank, you can still check your balances, deposit checks and transfer money in most cases.
- Are credit unions good for getting loans?
- Credit unions usually offer better loan rates than many traditional banks. Since credit unions are not beholden to shareholders (like most big banks), there is no incentive to charge high rates for auto loans and mortgages. But it’s still a good idea to compare loan rates between several financial institutions before getting one to make sure you’re getting the best rate possible.
- Is there a downside to a credit union?
- The downsides to a credit union can include limited accessibility, as they often have fewer branches and ATMs. Additionally, some credit unions may offer a narrower range of financial products and services and may lag in advanced technology and online services.
- Is it better to have a bank or a credit union?
- Whether a bank or a credit union is better depends on your personal financial needs. If you prefer lower fees, higher savings rates and a more community-focused institution, a credit union might be better. However, if you need broader access to branches and ATMs or more diverse financial products, a traditional bank might be more suitable.
- What is the biggest advantage of a credit union?
- The biggest advantage of a credit union is its member-centric approach. This often results in better interest rates, lower fees and more personalized customer service. Being nonprofit entities, credit unions are focused on serving the best interests of their members rather than maximizing profits.
- Are credit unions FDIC insured?
- No, credit unions are insured by the NCUA, which covers deposits up to $250,000 per depositor, similar to FDIC insurance.
- How do you join a credit union?
- To join, you need to meet membership requirements, like employment, location or affiliation, and pay a small joining fee.
Elizabeth Constantineau contributed to the reporting for this article.
