You’ve moved to a new town, and you hear everyone talking about the local credit union and how great it is, but what actually is a credit union?
A credit union is a nonprofit financial center that provides many banking services, like checking accounts or loans.
When you join a credit union, you’re more than just an account holder — you’re a part-owner. That means your voice — and your vote — actually matter when it comes to how the union is run. Members vote on a volunteer board of directors to oversee the place.
But not just anyone can join a credit union. Most members are connected in one of four ways — an employer, a family member, geography or group membership — like a church, temple or labor union.
This makes credit unions a lot more selective, and their members are usually more satisfied with the customer service when compared to customers of big national banks.
And since credit unions are nonprofits, the money they make is given back to members through reduced fees and higher savings rates, not to mention lower interest payments on loans.
For example, the average 60-month new-car loan from a credit union is 2.8%, almost two full percentage points lower than the average bank loan rate (4.7%).
Credit unions are organized in what’s called a cooperative structure in order to give mutual benefit to everyone. Some credit unions even help teach members about personal finance or offer small business assistance. In other words, “one member’s savings becomes another member’s loan.”
But credit unions aren’t perfect. Because they’re smaller, they tend to offer fewer options and are much slower at adopting new technology than big banks with huge research and development budgets.
Credit unions also tend to have fewer ATMs, though this is changing as more join co-ops to allow their members to use other ATMs at no fee.
Even so, the average credit union ATM fee is a buck cheaper than the big banks. When you combine that with the fee some ATM operators charge, you could be facing a $5 charge just to get your own money in cash.
There may not be any decent credit unions in your area, so before you jump ship, make sure you figure out what matters most to you. Narrow down the list and make a decision, and don’t forget to read the fine print!