Definition
A credit union is a member-owned financial cooperative that provides a range of financial services to its members. It is a non-profit organization that is owned and controlled by its members, who are typically individuals with a common bond, such as working for the same company, living in the same community, or belonging to the same organization.
Credit unions offer many of the same services as banks, including savings accounts, checking accounts, loans, mortgages, and credit cards. However, because they are not-for-profit and owned by their members, they often offer lower fees, better interest rates on savings and loans, and more personalized customer service.
Members of a credit union have a say in the operation of the institution, as they elect a volunteer board of directors from among the membership. This democratic structure allows credit unions to focus on serving the needs of their members rather than maximizing profits for shareholders.
Why do people use credit unions?
Many individuals might select a credit union due to its convenience. For example, the presence of numerous branches and ATMs in the area can be an attractive feature. The distinct ownership model of credit unions is another factor that leads people to choose them.
Given that credit unions are owned by their members, they frequently offer lower interest rates on loans and credit cards, along with higher rates on checking or savings accounts in comparison to traditional banks.
Furthermore, obtaining a loan or credit card at a credit union can sometimes be easier because they may conduct individual evaluations for each situation. Because credit unions are community-focused, they are able to offer more tailored customer service. Some people may appreciate supporting a local nonprofit organization that resonates with their values, which is why they favor using credit unions.
Membership requirements
Membership requirements for credit unions can vary widely, as each credit union sets its own criteria. Some of them have more lenient membership requirements and may have broader eligibility than others with a strict system.
One example of a credit union with fairly strict membership requirements is the Navy Federal Credit Union. This credit union serves military service members, veterans, and their families. To be eligible for membership in this credit union, an individual must be a service member, veteran, retiree, or civilian employee of the U.S. Department of Defense, or a family member of someone who falls into one of these categories. Therefore, membership in the Navy Federal Credit Union has fairly strict eligibility restrictions based on military affiliation or familial ties.
In contrast, a credit union with lenient membership requirements could be Alliant Credit Union. This credit union is open to all U.S. residents, and anyone wishing to become a member can do so by making a small donation to a charitable organization and opening a savings account. They also welcome membership through participation in certain charitable organizations. Therefore, Alliant Credit Union has more relaxed membership requirements compared to some other credit unions.
Advantages and disadvantages of credit unions
The utilization of credit unions has its pros and cons. One of the primary benefits of credit unions is that they occasionally offer superior service compared to banks. Additionally, they provide lower fees and higher interest rates. Since credit unions are owned by their members, they strive to act in the best interests of their clients, rather than shareholders. This can result in members of the credit union receiving greater benefits. If community support is important to you, then choosing a credit union may be a more effective solution.
The most significant drawback of credit unions is their smaller size compared to banks. Opening an account with a large bank will likely make it easier to find ATMs and branches across the United States. Most credit unions are local organizations, with only a few branches and ATMs in a given area, which makes access to services more difficult. Additionally, credit unions may have a less developed technological infrastructure and typically offer fewer services and products compared to banks.
Pay attention before joining
Before joining a credit union, it is important to consider several key aspects. Research the services and benefits offered by the credit union, such as interest rates on savings accounts, loans, and other financial products, ensure that it is financially stable and has a good reputation. It is crucial to compare its terms with those of other financial institutions, such as banks, to choose the most suitable option for your needs. Make sure you meet the membership criteria for the credit union. Membership is typically open to specific groups of people, such as employees of certain companies, residents of specific areas, or members of particular professional organizations.
You can start by completing an application to confirm your eligibility for membership and become a participant. To do this, you will need to open an account and make a small deposit to validate your membership. Typically, this can be done online or at a local branch. You may be required to provide some identification information, such as a social security number or state ID, as well as proof of meeting the requirements.
You will also need to have a way to fund your account, such as cash for the deposit or the details of your bank account for transferring funds. After completing these steps, you will be able to start opening other accounts or applying for loans.