With the recent barrage of news showcasing the corruption associated with corporate-minded leaders who run large banks, many are on the hunt for a new way to bank. There are approximately 6,000 credit unions around the nation. Though they are a relatively small part of our financial system, it is worth looking into pros and cons to see whether giving up a big bank altogether is the right move for you.
Devan Goldstein at NerdWallet, a personal finance website, explains that despite common worries that your money isn't safe at a credit union, it can in fact be just as safe as a traditional bank. He says, "Funds in banks are backed by the Federal Deposit Insurance Corporation and funds in credit unions are backed by the National Credit Union Administration, but the effect is the same: Deposits are insured up to $250,000 per person, per ownership category." With this relief in mind, consider other differences between credit unions and banks.
One of the biggest differences between traditional banks and credit unions is the business model. Banks are for-profit entities, while credit unions are not-for-profit entities. As such, they are owned by different people. The Public Service Credit Union website says: "Banks are owned and controlled by stockholders, whose number of votes depend upon number of shares owned. Customers don't have voting rights, cannot be elected to the board, and have no say in how their bank is operated." Conversely, credit unions are owned by the members. Regardless of how much money is deposited, each member has one vote to elect board members, and members can also run for election to sit on the board, Public Service Credit Union says. Comparing the two, credit unions are organized to serve the interests of members, while banks are organized to maximize profit.
To expand on the notion of profit, it's important to know how credit union profits are returned to members. This is done in a number of ways. Members can expect to see lower interest rates on loans and credit cards, and higher rates on deposits, Goldstein says. This can prove to be greatly advantageous for those who are looking to transfer their balance from a high-interest credit card or consolidate debt into one loan. It's also common for typical fees to be much lower than at big banks. For example, minimum balance fees are not nearly as common at credit unions. According to Bankrate, which conducted a Credit Union Checking Survey in 2016, 76 percent of credit unions offer free checking, which is more than twice the rate of free checking found in banks. For some, profit can come in the form of rewards. Those who charge a lot to their credit card and pay off the balance each month often look to benefit from cashback deals. In this regard, banks may be the better pick, as they typically offer much better and more expansive rewards.
Credit unions are notoriously believed to target fairly exclusive communities, such as teachers, government workers and military. However, there are far more credit unions available these days that cater to a larger demographic and are more easily accessible. In fact, according to Reuters, the credit union industry's regulator passed a new plan in October that relaxed membership restrictions -- namely, "member-owned lenders that typically form around a common employer, hometown or other shared class." Additionally, it approved easing geographic limits on membership, and one reform "encourages union expansion into poor and rural communities by easing tests for whether those regions are underserved by other creditors." Research credit unions in your area to see what options are available to you.
A large consideration with banking is the actual banking experience, such as interacting with representatives, location of branches, etc. As you can imagine, because of the smaller, more community-based ideology of credit unions, Goldstein says, they are known to generally have superior customer service compared with banks. On the other hand, because banks have different resources, banks often implement and adopt new tools and technology more quickly.
The weight and significance of these matters depends on each person's personal financial situation and preference. Now that you are familiar with some considerations, reach out to local credit unions to see whether making a switch is the right move for you.