Credit unions are designed to serve people who share a common bond, and those who meet the criteria are known as the field of membership.
A credit union is a type of nonprofit financial institution that’s owned by its members.
To join a credit union, you’ll first need to meet certain eligibility requirements.
Credit unions generally offer lower interest rates on loans and credit cards and higher rates on deposits.
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If you’re looking for a place to deposit your paychecks, borrow money, and use services tailored to your lifestyle, credit unions could be a great alternative to a bank. But these nonprofit financial institutions usually require membership.
“The majority of credit unions serve a very defined community or group,” says James Schenck, president and CEO of Pentagon Federal Credit Union. “So they’re a gathering of members with similar goals and aspirations.” The credit unions in your area may, for instance, serve military members, teachers, fire fighters, or residents of a particular county.
There are many ways to join a credit union, and more than 120 million people in the US belong to one. Here’s what to know about credit unions and how to join one.
What is a credit union?
A credit union is a type of nonprofit financial institution that’s owned by its customers, often referred to as members. So when you open a checking account, loan, credit card, or other product at a credit union, you become more than a customer — you’re an “owner-member.” You’ll get to participate in the board-of-directors election process and help make other decisions on how the credit union runs.
A credit union’s main goal is to serve their members, so “profits are distributed back to members in the form of lower costs for services, lower interest rates on loans and greater access to funds through fee-free ATM networks nationwide,” says Chris Lorence, the executive director of Credit Union Awareness LLC, a subsidiary of the Credit Union National Association (CUNA).
How credit unions work
Most credit unions offer common financial products — such as checking and savings accounts, credit and debit cards, and different types of loans — in addition to extra services like financial counseling. They may even customize some products to serve the field of membership. For example, members of a teacher’s credit union might have access to special personal loans during the summer months when they’re not receiving paychecks.
The extra products and services are part of a focus on customer service, of which “credit unions get rated very highly,” Schenck says. That’s because “a credit union sees it as a long-term relationship.”
Credit unions can also participate in a shared branching network, which “extends many credit unions services, like making deposits and accessing funds, through other credit unions nationwide,” Lorence says. The CO-OP Shared Branch network provides credit union members access to nearly 5,700 branches and more than 30,000 surcharge-free ATMs.
However, you may have access to fewer product offerings with a credit union compared to a bank. For example, a credit union may only offer a few types of mortgages, while a bank may have a dozen choices. Additionally, credit unions may be slower to adapt to new technology compared to large national banks. This potentially leaves credit union members with less-robust online banking and mobile app options.
But both types of financial institutions provide the same level of insurance. At federally insured credit unions, your funds are insured by the National Credit Union Share Insurance Fund (NCUSIF). This organization is backed by the National Credit Union Administration (NCUA). Each member is insured up to $250,000 per account against credit union failure.
Important: Bank members also receive up to $250,000 in deposit insurance per account through the Federal Deposit Insurance Corporation (FDIC).
How to join a credit union
Credit unions are designed to serve people who share a common bond, and those who meet the criteria are known as the field of membership. “Prospective members must prove they fit in with the respective field of membership of the credit union they wish to join,” says Thomas Racca, the manager of Navy Federal Credit Union’s personal finance management team.
There are many ways to join a credit union, but each has its own requirements. For instance, you may qualify if you work with a certain employer, live in a certain area or have a family member who’s already part of a specific credit union. Some credit unions have more flexible requirements where you’re eligible by joining a charitable organization. PenFed is one of several credit unions that has an open field of membership, Schenck says, so anyone can join.
Quick tip: Lorence suggests using the Your Money Further search tool to find a credit union near you. Then check out the eligibility page or give the credit union a call to learn about membership rules.
Credit unions vs. banks
Here are the key differences between credit unions and banks:
Owned by its members and operated as nonprofit institutions
People usually must fit eligibility requirements to become a member
Branches are local unless the credit union participates in a shared network
Offer deposit insurance through the National Credit Union Administration
Slightly lags behind in technology for online banking and mobile apps
Owned by investors and operated as for-profit institutions Membership not required Branches may be regional or nationalOffer insurance through the Federal Deposit Insurance CorporationUsually offers more advanced technology for banking online and through mobile apps
Pros and cons of credit unions
And here are the main pros and cons if you’re considering becoming a member of a credit union:
Lower interest rates on credit cards and loans
Higher interest rates on deposits
Higher customer service ratings
Membership is usually required Fewer product offerings Technology may be more limitedMay have few branch locations
The financial takeaway
Credit unions are nonprofit financial institutions that generally charge lower interest rates on loans and lower account fees. They also tend to offer higher rates on deposits, which can help you earn more on your savings. And because they’re community-oriented, you might find better customer service at a local credit union and more services geared toward your needs. As a trade-off, you’ll need to show you fit the credit union’s eligibility requirements and may receive fewer offerings.
If you’re looking for a new financial institution, make sure to compare credit unions against community banks, online banks, and even large national banks. If a credit union near you offers what you need and you’re eligible to join, it could help you save money in the long term.
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