3 reasons why you should be banking with a credit union
If you grew up in or around a metropolitan area or college town, you likely became familiar with banking through big names like Chase, Bank of America, TD Ameritrade or Wells Fargo. These "traditional" banks are for-profit institutions that are typically publicly traded and trying to earn a profit to redistribute to their shareholders.
These large and midsize regional banks offer a wide range of services, such as credit cards, checking and savings accounts, personal loans that you can use to buy a car or a house, and investment opportunities. Typically, retirement or taxable brokerage accounts are set up with one of these banks. Eighty-four percent of Americans bank with a traditional for-profit bank.
Related: Bank fees are a big problem for Gen Z and millennials. Here’s how to avoid them.
But have you ever stopped to wonder if there was a different way to bank that simultaneously helps local communities and offers better accounts and services?
Credit unions first appeared in Germany in the 1850s. By the 1900s, they were all over Europe and Asia. Their mission was to serve workers and families in underserved communities — tradespeople, artists, entrepreneurs or rural folks outside urban areas. If someone in a specific community or industry needed to borrow money, they could borrow it with little to no interest because members of credit unions share the cost of the risk.
Sound too good to be true? It’s not! Here are three ways credit unions outperform traditional banks, especially when you’re just starting out.
They offer better rates, lower fees and focus on their members
Credit unions are essentially nonprofit banks owned by their members. Since each member is a fractional shareholder, credit unions focus on serving their members through competitive products, meaning better rates and low fees that you can (and should!) take advantage of.
For-profit banks are typically national or even global and offer a range of non-banking services.
Related: Why you should check your bank account balance - Every. Single. Day.
On the other hand, credit unions have their roots in serving local communities. But today, with advancements in online banking, most credit unions are accessible to anybody, anywhere, which can significantly help modern Americans who have too often been overwhelmed by overdraft fees. If you're one of the millions of Americans who overdrafted in 2021, your fee helped banks earn $8 billion. Wells Fargo, Chase and Bank of America collectively made 44% of that profit. Before I got my finances in order, I overdrafted 14 times in two days, owing a total of $490 in fees alone. It was one of the major breaking points that kicked off my financial freedom journey.
They’re less restrictive than traditional banks
With a for-profit bank, you rarely earn interest on a checking account balance, and you must keep a minimum balance or have a certain number of direct deposits per month to avoid being charged a fee. Credit unions don’t typically require a minimum monthly balance or direct deposit. Another perk is that credit unions have the best free checking and savings accounts that accumulate interest. They also offer low-interest car and personal loans. For example, Blue Federal Credit Union is currently offering 1-2% interest on certain checking accounts, and Alliant creditunion is offering .25% just for your checking! In my opinion, the best account currently out there is through Liberty Credit Union (formerly Evansville Teacher Federal Credit Union), which, as of December 2022 was offering 3.45% for a checking account. My golden rule of checking accounts is to keep one month’s worth of expenses in your checking account as your first line of defense. For most people, this is usually anywhere from $3,000-$10,000. Imagine making money while your money sits there, protecting you.
Related: The 3 cash accounts you need to build wealth
For-profit banking institutions don’t offer much in the way of benefits for your savings accounts, either. TD Bank offers .02% in interest but charges a $5 fee if the account balance dips below $300. So do Chase and Bank of America. When researching PNC’s savings account, I wanted to scream! To waive the monthly $5 fee, you must keep a minimum balance of $300 or have the account linked to a select PNC checking account, set up an auto transfer of $25 or more, or be under 18 years old.
Did you get all that? Upon further investigation, I found that you must meet another set of requirements to earn interest! You must make five or more transactions from your checking account or have $500 in qualifying direct deposits per month.
Finally, after a 30-page document and being directed to another site, I found that the interest rate, after all the compliance is … drum roll please … 0.02%.
They give you more opportunities to build wealth faster
In the land of credit unions, things look a little different. At Alliant, you earn a whopping 1.4% and have a $100 sign-on bonus if you contribute $100 per month for 12 consecutive months. There is no maintenance fee, but you do have to keep a balance of $5 to keep the account open. They also allow you to have 19 supplemental savings accounts at no additional cost. Nineteen! That means you can have a travel fund, shoe fund, wedding fund, home decor fund, plant fund, and 14 other funds of your choosing, though as a financial freedom coach, I do not recommend having 19 checking accounts.
Credit unions can be a fantastic alternative to traditional banking, especially for young earners who are just starting to make money and build wealth. A critical part of your financial freedom journey is knowing you have options when choosing a place to store your cash and understanding what those options are. There is no right or wrong way to utilize banking services, and you don't have to bank where your parents set up your first account. There are also zero ramifications for closing accounts, so do what's best for your long-term wealth. When thinking about where you want to bank, consider these questions.
Where can I get the best checking account with no fee?
Where can I get the best high-interest savings account that offers free supplemental accounts for short-term savings?
What credit card can I afford that would enable me to earn the highest cash back, points or miles?
Are these services available online with a user-friendly mobile app?
There is a good chance you’ll find the checking and savings account with the best deal will be through a credit union.
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