What Are Credit Unions And What Should You Know About Them?
Credit unions look just like banks for most people. They can hold deposits, offer loans, issue ATM cards, checks and offer various investment services. The big difference between the two is not connected with offered services. It is linked with how the institution is run.
The bank is meant to get profit. Money is made by charging interest, collecting fees and making investments. Federal and state taxes are paid because banks are for-profit organizations. The credit union is a not-for-profit institution. It is owned by account holders, named “members”. The profit that is earned is invested into the union or paid out to the members as dividend. No federal or state taxes are paid so interest rates are lower than what the bank charges.
The credit union was practically created to be a cooperative financial institution, built for those that share common bonds. Credit union members usually work for the same organization, serve in military forces, are a part of the same church, live in the exact same community or even attend a specific college. Close to 90 million US citizens are now credit union members. Around the world there are over 46,000 credit unions active right now.
Corporate Unions Versus Natural-Person Credit Unions
When credit union membership is gained through the community, school, church or workplace, the official name is natural-person credit union. Natural person practically means individual. The natural-person credit unions depend on large financial institutions for liquidity supply. The institutions are corporate credit unions. In the US now there are around thirty corporate credit unions owned by members that are practically natural-person credit unions. The corporate credit union is regulated by state banking authorities or the NCUA (National Credit Union Association).
Credit Union Types
The two most important credit union types are those mentioned above but there are actually 4 types that exist:
- Federal Credit Unions – Regulated and charted by the government, all under the Federal Credit Union Act.
- State-Charted Credit Unions – Regulated and charted by state banking authorities.
- Corporate Credit Unions – They offer financial services to the natural-person credit unions.
- Natural-Person Credit Unions – They offer financial services to the individuals.
Membership In Credit Unions
Any individual can apply to join credit unions when there is a common bond shared like educational system, employer, government branch, community or church. Credit union movement growth was massive in the past years so the number of people that are eligible through some sort of connection is huge.
If you want to see if you can quality for credit union membership, you need to consider the following:
- Ask work HR representatives. Employers may sponsor or give you access to some credit unions.
- Ask neighbors and friends if they know of community credit unions for the city, county or local neighborhood.
- Ask family members if employers sponsor credit unions. Many actually allow the family members to become a full member.
- Call the state credit union league.
- Use online search tools offered by CUNA.
How To Become A Credit Union Member
In order to become a credit union member, an application has to be filled out. Many actually offer these online these days. Basically, the first step is to prove eligibility. Get ready to offer the name of the employer, organization or relative through which the eligibility appears. After, you have to fill out standard personal information about work and life, together with salary details. Then, you get to choose desired financial services.
As a member of a credit union you can opt for financial services that are similar to what banks offer. This includes credit cards, ATM cards, checking accounts, money market, IRA accounts, recreational vehicle loans, mortgages and money orders, among many others.
Why Become A Member Of A Credit Union?
In most cases the big advantage of being a member of a credit union is that the interest rates charged for credit are lower. At the moment, the average bank charges 15% for credit cards while credit unions charge around 12%. Also, it should be added that most of the credit unions do not charge annual credit card fees and the checking accounts offered are usually free. In order to open an account you do not need a lot of money with the credit union.
A disadvantage that should be highlighted if you consider becoming a member is that there are fewer branch offices available and the access to ATMs is lower. Also, you might not get so many services as you could from banks if you are a member of a small credit union.
If you believe the disadvantages of being a member of a credit union are not of importance for you, there is no real reason why you should not join a credit union. The simple fact that interest rates are lower for credit cards and loans is a huge advantage that cannot be dismissed.