When it comes to opening a checking account or getting a credit card, you need to go through some kind of financial institution. Many people choose major banks, like Chase, or Bank of America. However, a slightly lesser known alternative is a credit union. Credit unions offer many benefits that banks don't, and exist to serve their customers. In today's article, I'll be talking about the different aspects of credit unions.
A credit union is a financial institution that, in many ways, functions like a bank. However, there are a few key differences. First, let's discuss what credit unions offer. Just like banks, credit unions offer checking and savings accounts, credit cards, loans of all kinds, and even retirement accounts. They also function just like banks, so you can make deposits and withdrawals, get cash, and write checks.
One key difference between a credit union and a bank is the fact that banks are for-profit, meaning their goal is to make money, while credit unions exist to serve their customers, not to make money.
How is this possible? Well, banks are owned by investors who give the bank money. In turn, banks need to generate revenue to pay their investors. Credit unions, on the other hand, are not owned by investors, instead, they are funded and run by their customers.
How is this possible? Credit unions pool the money of their customers and use that to operate. Credit unions are also run on a much smaller level than banks. Banks like Wells Fargo have thousands of branches across the country, while credit unions operate locally. This means each area will have a different credit union, with each union aiming to serve its local community. Credit unions are also often run by volunteers. So, they save money not having to maintain and run a ton of branches. They generate just enough money to pay off any expenses, focusing instead on providing the best level of service to their customers.
Additionally, credit unions often only serve certain groups of people. For example, certain credit unions are meant exclusively for teachers or firefighters. Some credit unions also only serve the alumni of a specific college.
Because credit unions don't aim to make money, they offer better rates for things like savings accounts, or mortgages. They can afford to pay you more interest in a savings account and charge you less interest on a loan because they aren't concerned with generating profit. This is the biggest benefit of a credit union.
While you are almost guaranteed to get better interest rates at a credit union, there are a few downsides. The first is that most credit unions are local, so if you're traveling somewhere decently far from your home, you won't find a branch of your credit union. Banks, on the other hand, have branches in nearly every city. A similar situation applies to ATMs, many credit unions only have a few of them, and only in their region of service. Because credit unions are so much smaller, they may not be as technologically advanced, have slower/older websites.
However, if you're willing to look past these shortcomings, credit unions are a great way to store your money and get loans while also receiving competitive interest rates.
In short, a credit union's main goal is to serve its customer, not make money. Credit unions offer most of the same services major banks do, while still prioritizing the customer.