When it comes to deciding where to keep your money, you have choices. Big banks tend to get a lot of attention – and for many people, there’s a comfort level to dealing with a large, well-known financial institution.
At Addition Financial, we often have people ask us why they should join a credit union instead of using a traditional bank. Maybe we’re biased, but we think there are a lot of benefits to joining a credit union.
One of the biggest differences between a bank and a credit union is that when you join a credit union, you become a member of a community. Our Additional Financial members aren’t just faceless customers to us. They’re part of a family.
Big banks often view their customers as numbers. The decisions they make about fees and customer service are designed to keep their board members happy and add to their profits. By contrast, credit unions are not-for-profit organizations. Their goal is to keep their members happy instead of prioritizing the bottom line.
One of the key benefits of a credit union is that they charge lower fees than banks do. As we stated above, banks must earn a profit to keep their shareholders happy. They regularly increase fees and earn their profits at the expense of their customers.
Credit unions set affordable fees to help their members financially. Of course, they have overhead expenses and must pay employees. But with profit taken out of the mix, the focus is on making it easy for members to get the financial services they need at an affordable price.
Lower Interest Rates on Loans
Another area where credit unions have an edge over banks is in their interest rates. There are some aspects of interest rates that are controlled by the Federal Reserve, but financial institutions have some leeway in how much they charge.
Credit unions often offer lower interest rates on loans, including mortgages and automobile loans, than banks. They may even offer incentives and cut their interest rates if a member signs up for automatic payments from a checking account. In other words, joining a credit union is likely to make it easier to buy a home or a car than using a traditional bank.
Higher Interest Rates on Savings Accounts
At the other end of the spectrum, opening a savings account or deposit account at a credit union may earn you a higher interest rate on your money than what you’d get at a bank. Again, this is a question of profit. Credit unions are nonprofit organizations.
Where a bank might minimize the interest rate it pays out to improve the bottom line, credit unions put their members’ interests first. That means they incentivize members to save money in a way that banks don’t.
Building (or Rebuilding) Credit
One of the real disadvantages to working with a big bank is that they often have very strict requirements about credit. It can be difficult to qualify for a mortgage or credit card if you’ve got limited credit or you’ve had some late payments or other problems in the past.
By contrast, credit unions are often happy to work with their members who are either young and have limited credit, or who have endured financial hardships and need to rebuild their credit. For example, Addition Financial members can take advantage of our services to establish good credit and work toward qualifying for a mortgage or car loan.
Bank deposits are insured by the Federal Deposit Insurance Corporation (FDIC), which was created after the Great Depression to protect people’s money in the event of a bank failure. You may have heard that credit union deposits are not covered by the FDIC.
However, credit union deposits are covered by another organization, the National Credit Union Administration, or the NCUA. The NCUA insures deposits up to $250,000 (the same as the FDIC). If you join a credit union, your money will be protected even if the credit union fails.
There are varying membership requirements from credit union to credit union, but once you join a credit union, you’re a member for life – even if you no longer meet the qualifications to join. We understand that life circumstances change.
You may be required to maintain an account to be a member – you’ll need to check with your credit union to find out what the requirements are.
The benefits of a credit union are clear. As a member, you’re part of a family – not just a number on a spreadsheet. That’s not the case with most banks.
To learn more about opening an Addition Financial checking account, please click here.