For those of us who have always dealt singularly with banks, they may not be familiar with how credit unions work or the advantages of a credit union over a bank. However, credit unions offer many benefits, especially for an individual looking to open an account with lower fees and better savings rates. With only a few key differences between them, should you go with a bank or credit union?
From their fee structure to interest rates, product offerings, and services similar to a bank, here is a breakdown of why credit unions are better than banks.
What Is a Credit Union?
A credit union is a collection of members, aka shareholders, who offer loans, mortgages, and savings products wherein the profits derived from these products are returned to the shareholders. Credit unions are managed and guided by their members, providing only profitable products for the shareholders. Some well-known examples in Canada include ECU, an Ontario credit union.
Benefit #1: They Offer Better Fees and Interest Rates
Credit unions know that most people are used to dealing with banks when opening financial accounts and applying for loans. Therefore, credit unions often offer better interest rates and fewer fees than banks to attract more clients. You can open a savings account with higher interest than a bank or obtain a loan under more favourable terms.
Benefit #2: You May Find It Easier to Get a Loan
In some credit unions, you may discover getting the loan you need is easier than a bank’s requirements. As members run credit unions and are often local, members can build relationships with their credit union and loan decision-makers. Over time, there’s more trust in those relationships than you might find with advisers at a bank.
Benefit #3: Achieve Your Savings Goals Faster
With higher interest rates, a credit union will pay you more for putting your savings with them than a bank. If you have aggressive financial goals, you’ll get more from having your money with a credit union based on fewer fees and more savings interest.
This allows you to save faster, achieving your retirement goals, homeownership, and more in a shortened time frame.
Benefit #4: Credit Unions Offer Simpler Products
Credit unions are defined as not-for-profit organizations. They try to keep things as simple as possible, typically offering fewer products than a bank does. This provides clients with a sort of simplification to their banking, helping them rebuild their credit and set savings goals, working chequing and accounts accordingly.
Benefit #5: No Monthly Service Charges
Many credit union accounts require no minimum balance and no monthly service charges. Whatever charges there are, they are low. If you are in a bad spot financially, a credit union could be your way out and on to better things. Rebuild your credit. Rebuild your savings. A credit union can help in a big way and with minimal charges.
Benefit #6: Some Credit Unions Have Free ATMs
A disadvantage to a credit union is that they don’t often have the same number of branches nationwide as that of a bank. Fortunately, you still have a phone and online services if there are questions or concerns. A major benefit to credit unions is that some operate within a co-op structure and offer surcharge-free access to applicable ATMs.
Benefit #7: Customer Service Is Better at Credit Unions
Though this varies from institution to institution, credit unions are sometimes known for better customer service. Larger banks tend to have stricter rules. As credit unions are community-owned, there may be a little more flexibility in the decision-maker, and clients may be able to negotiate with them more as they apply for products like personal loans.
Benefit #8: Members Get to Vote on Policies & Decisions
If you decide to become a credit union member, you get to vote on policies and decisions made by the financial institution. It’s very much a community-run organization in a way that a bank does not even closely resemble. To a degree, this allows you to engage with your credit union in a more personal way and play a role in helping others in need in your community.
Benefit #9: Credit Unions Offer Equal Safety to a Bank
In terms of safety and security for your money, credit unions use government-backed insurance identical to that of a bank. Typically, amounts up to $250,000 are insured in accounts in banks and credit unions. There is no less security in putting your money in an account with a credit union than in an account with a bank.
Benefit #10: Some Credit Unions Offer Education
Lastly, being local and community-run, many credit unions actively encourage financial literacy among members. They may offer free seminars, calculators, articles, and free consultations with members that sharpen their skills and provide them access to information on how to best manage their finances for things like retirement, investments, mortgages and homeownership, auto loans, student loans, credit card debt, and more.
