Are Credit Unions Right for Me?

Credit unions offer the same kind of products and services as banks, but crucially, credit unions are not-for-profit entities, whereas banks are commercial enterprises that must generate profits to stay in business. If you are considering joining a credit union, there are a number of factors to take into consideration. Ultimately, you must ascertain whether a particular credit union can take care of your financial needs.

Joining a Credit Union

Before you can think about opening an account or taking out a loan at a credit union, you must first determine whether you are eligible to become a member. All credit unions are owned and operated by the members, but membership eligibility requirements vary from one union to the next. Some credit unions restrict membership to people employed in certain industries. Other credit unions are more inclusive and allow anyone who lives, works or goes to school in a certain city or county to become a member. Call local credit unions to find out if you are eligible to join.

Locations

Credit unions usually have limited branch networks when compared with national banks. You should not expect a credit union that limits membership to one county to have branches in another state on the other side of the country. If your credit union offers online banking services and a 24-hour customer service hotline, then even if you travel a lot, you may not need access to a physical branch location. If you make frequent cash deposits, or need branch services but travel a lot, you would fare better at a national bank with many branch locations.

Interest Rates

Credit unions are not-for-profit, which means the entities typically offer higher interest rates for deposits and charge lower interest rates on loans than banks. However, due to membership restrictions, credit unions also have smaller deposit bases, which limits the amount of loans each branch can write. Due to the limited funding base, some credit unions do not offer competitive rates for mortgages and home equity loans because, simply put, the entities do not have sufficient funds to write huge amounts of loans. Credit unions do not have such problems funding smaller loans such as car loans. Consider your upcoming borrowing needs before deciding whether to join a credit union.

Deposit Insurance

Deposits held in credit unions are not protected by the Federal Deposit Insurance Corporation. However, the lesser known National Credit Union Administration does offer insurance to protect deposited funds. Like the FDIC, the NCUA enjoys federal backing and provides the same level of coverage as the FDIC. If you are concerned about federal insurance, then find out if credit unions in your area are NCUA members. Not all credit unions are NCUA members, just as not all banks are covered by the FDIC.

References

• Wall Street Journal: For Better Banking Check Out a Credit Union
• Puget Sound Business Journal: The bank vs. credit union battle
• National Credit Union Administration: NCUA Share Insurance FAQ's Questions and Answers
• SmartMoney: Credit Unions Offer a Smart Banking Option
• MSN Money Central: Ditch Your Bank For a Credit Union

Resources

• The Financial Brand: The Boston Globe and Banks Versus Credit Unions: A Misguided Argument
• Credit Union National Association: Homepage