There are two basic types of financial institutions available to consumers in the United States: banks and credit unions. Credit unions carry a number of advantages, starting with the fact that having an account there makes you a member of the organization. You might not receive the same levels of nationwide access to your accounts as you would with a bank, but if the pros and cons of credit unions are carefully weighed, joining one could be a sound financial decision.
What Are the Pros of Credit Unions?
1. They are based in the community.
Instead of having your saved money being transitioned around nationwide in a bank classified as being too large to fail, your local dollars stay local. This helps people to have faster access to their cash, create jobs that stay local, and a way to invest in their community while they strengthen their own financial future.
2. There are often fewer fees at credit unions.
Because credit unions are member-owned, many of the fees that you’ll find at them are lower when compared to the traditional bank. Sometimes they might not even have certain fees at all. This helps members be able to save more money back every year because they aren’t losing cash to the profit line of the financial institution.
3. Interest rates are generally better at credit unions.
Although this doesn’t apply to savings accounts, it does tend to apply to car loans, mortgages, and other debt products. The goal is to charge a member the least amount possible while still being able to make a profit. This helps members achieve more with their investments while the credit union still succeeds as well.
4. Credit unions still provide the same financial products.
You still get to have a checking account at a credit union. You’re going to be issued a debit card. There are credit cards that can be issued through the credit union. CDs and other products are typically available as well. Just about everything you’ll find at a bank is what you’ll also be able to find at a credit union, giving members plenty of options to help their money grow.
5. You have faster customer access when there is a problem.
Because credit unions are locally owned and operated, you receive faster customer access to your accounts when a problem occurs. If you need a fraud alert or other notification on your account, all you’ve got to do is make one quick phone call or send your representative an email and the job is done. There are very few hoops through which you must jump.
What Are the Cons of Credit Unions?
1. You have less access to your accounts outside of your community.
If your work takes you out of state and you need to deposit a check, there isn’t generally a local branch of your credit union available to you. Most credit unions only have a handful of branches, if any, and they stay congregated within a local region.
2. The controls over loan products are often tighter.
Because there is more risk involved due to the better interest rates, many members find that gaining access to debt products can be more difficult. If a credit score is 650 or below, there’s a good chance you’re not going to be approved for anything. At a bank, you might still have access to a higher interest debt product.
3. There is more risk of the credit union going out of business.
A credit union is not going to be too big to fail. Although accounts in a credit union are insured against loss, this amount is capped. If this is the only place to get your banking done in a community and it goes under, it can be difficult for the former member to find a new place to store their cash.
4. There may be fewer overall products from which to choose.
Instead of having 10 types of CDs from which to choose, a credit union may only offer 2-3 choices. Instead of having multiple checking account options, you might have access to only one. You’ll still have access to products and services at a credit union that can be financially beneficial, but the number of choices is reduced and this means there might not be a product to meet your specific needs.
5. It generally takes an application process to join.
Credit unions are allowed to dictate who becomes members of their bank. They can set restrictions on where someone lives, where they work, and other socioeconomic factors to determine who can apply for membership and who cannot. This means not everyone is going to be approved when they apply and this could leave someone who needs banking products in the lurch.
The pros and cons of credit unions show that it can be a beneficial place to put your cash when you want your dollars to stay and work locally. For better access to cash when you travel, a national bank might be a better solution.
Crystal Lombardo is a contributing editor for Vision Launch. Crystal is a seasoned writer and researcher with over 10 years of experience. She has been an editor of three popular blogs that each have had over 500,000 monthly readers.