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Should You Drop your Bank & Join a Credit Union?

written by: •edited by: Carly Stockwell•updated: 12/19/2013

Joining a local credit union has several distinct advantages over a bank. Should you switch accounts?

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    Should You Switch From a Bank to a Credit Union? For those who are tired of being on the short end of the stick in terms of their dealings with their financial institutions, you may want to try exploring the advantages that a credit union. First understand some of the differences between commercial banks and credit unions and decide which better meets your financial needs.

    Profit vs. Non-Profit

    The primary difference between a credit union and a commercial bank is that the former operates as a non-for-profit enterprise while the latter is guided by the profit motive. It is this difference that affords the credit union’s biggest benefit because their non-profit status offers them exceptions from federal taxation.

    Without this tax burden, credit unions are able to offer very attractive interest rates on saving, checking, and CD accounts that can’t be met by commercial banking accounts.

    Additionally, state regulations frequently set caps on the interest that can be charged for the loans and mortgages that they extend to their memberships. Needless to say, high interest payments on savings and low interest charges on loans make a strong proclamation for credit union enrollment. Further sweetening the deal, most of the transactions that annoy the average bank customer are completely free of all charges, fines, and fees.

    It’s About Ownership…

    As a credit union member, depositors are more than an account number. Credit unions members own a part of the credit union by virtue of their deposit and the advantages accrued from ownership are passed down to the benefit of the entire credit union community. Although the credit union operates as a non-profit entity, that doesn’t necessarily mean that they won’t garner a profit through the running of their day-to-day operation. When profits are accrued, their members end up as the beneficiaries by higher yield savings acounts, lower interest-rate loans or even dividend payouts.

    It’s About Local Locations…

    In line with the fact that credit union account depositors are also credit union owners, the focus of these financial institutions are more locally targeted than a national bank. This provides an excellent source of local funding for projects that might otherwise get go uncompleted in the risk-adverse atmosphere of a commercial bank’s lending office.

    However, there are still some reasons people tend to stick with traditional banks. Because of their greater size and scope, banks offer far more branches and ATM options than their smaller credit union brethrens. They are also typically able to offer more services than a credit union when it comes to such things as big ticket mortgage options and other services. Additionally, banks give depositors the peace of mind that comes with federally insured deposits that credit unions do not offer.

References

  • http://www.dailyfinance.com/2010/04/27/should-you-join-a-credit-union-heres-what-you-need-to-know-hol/
  • http://www.mycreditunion.gov/about-credit-unions/Pages/How-is-a-Credit-Union-Different-than-a-Bank.aspx
  • http://www.businessinsider.com/credit-unions-vs-big-banks-2013-4