Credit Unions are not-for-profit financial institutions owned by their members instead of stockholders. They operate to promote their members’ financial well-being by returning their earnings in the form of lower mortgage and loan rates, fewer service fees and higher savings yields.
They are governed by boards of directors democratically elected by their membership and are exempt from corporate income tax. They are fully insured by the National Credit Union Administration (NCUA) up to $250,000, similar to FDIC coverage at banks.
There are many reasons to choose a credit union over a bank, including lower rates and fees, more APYs, superior financial education, and a personal connection. But there are some important differences between the two, and it’s crucial to find the right fit for you.
Banks are for-profit institutions that focus on making a profit. They tend to charge more fees and have lower APYs on their savings products, but they also offer a wider variety of financial products and services than credit unions do.
Most credit unions are local or regional, so you’ll have a closer personal connection with your banker than with a larger, nationwide bank. This is because you’ll typically be working with people who live in your community and will have a greater understanding of the unique challenges and opportunities facing your community.
While banks can provide a wide range of products and services, credit unions often stick with a few core offerings, such as checking and savings accounts, credit cards, consumer loans and mortgages.
A credit union’s business model is to pool member savings, then use that money to lend to other members. Any income generated is used to pay for projects and services that benefit the credit union’s members and their community.
Credit unions are regulated by the NCUA, which ensures their continued success. The NCUA, founded in 1934, is a federal agency that oversees state and federally chartered credit unions.
Some credit unions are sponsored by employers, such as car dealerships and grocery stores. Employers may pay a small fee to the credit union for the privilege of sponsoring it. This is a great way to bring in extra revenue without having to spend money on advertising or staff.
The best way to determine if a credit union is right for you is to visit a branch or call to speak with a member banker. You can also browse a credit union’s website to see what it has to offer.
It’s important to note that while credit unions are more localized than banks, they are not as large and can be less convenient for some clients. They also don’t offer the same rewards programs or special offers that banks do.
Another difference is that a credit union’s membership requirements may be more rigorous than at a bank. For example, some credit unions require you to live or work in a specific geographic area.
You can also find a credit union that caters to a specific type of person or lifestyle, such as an employer-sponsored credit union. A credit union with a lot of employees is probably better suited to the needs of a large business, while one with fewer employees might be a good choice for an individual or family.