What Is a Credit Union? – Pluses and Minuses

When talking in general, a lot of people have heard of a credit union, but they are not entirely sure what sets it apart from a bank. They both do offer similar services, after all. But the fact is, credit unions are unique in a number of ways, and these differences can have a big impact on your finances. In this article, we will explore what is a credit union and its’ definition, and also what makes this type of financial institution different from a bank.

The first thing you need to know about a credit union is that it’s a financial cooperative that is owned and controlled by its members. Credit unions provide a safe place to save and borrow money at reasonable rates. On top of that, they also offer many of the same services as banks, including checking and savings accounts, loans, and credit cards.

So, you might be wondering, what is the difference between a credit union vs. a bank then. Well, the main difference between a credit union and a bank is that banks are for-profit businesses, while credit unions are not-for-profit cooperatives.

This means that credit unions do not have shareholders who expect to make a profit from the organization. Instead, any earnings are returned to the members in the form of lower loan rates, higher interest on deposits, and other benefits.

With that said, there are some drawbacks to credit unions you should be aware of. They may not have as many branches or ATMs as larger banks, and they also may not offer all of the same services or accounts.

Overall, credit unions offer many advantages over traditional banks. If you are searching for an alternative to your current bank, a credit union may be a good option to consider. You can also search them online simply by typing credit unions near me. 

How Does a Credit Union Operate?

Now that you know the definition of a credit union let’s see how it actually operates.

As mentioned above, credit unions are not-for-profit organizations that are owned and operated by their members. They exist to serve their members and not to make a profit. In other words, this means that they can offer higher interest rates on deposits, lower fees, and better loan rates.

Credit unions are governed by a board of directors who are elected by the membership. These directors serve three-year terms and are responsible for setting policy and ensuring that the credit union is operated in a sound manner.

The day-to-day operations of the credit union are managed by a staff of professionals who carry out the policies set by the board of directors.

Also, the members of a credit union are also shareholders in the organization. What it means is that they have a say in how the credit union is run and can elect the board of directors. In case you are interested in joining a credit union or, in other words, a lending union, ask around in your area if there are any.

Credit Unions vs. Traditional Banks: What’s the Difference?

We have already mentioned above that a credit union differs from a bank, but what is the real difference?

Though both credit unions and traditional banks offer similar services, there are several key ways in which they differ.

For one, credit unions are not-for-profit organizations, while banks are for-profit. Simply put, this means that credit unions reinvest their earnings back into the organization to benefit their members rather than shareholders.

Additionally, credit unions are typically smaller than banks and have a more community-focused approach. They also often offer higher interest rates on savings accounts and lower fees than traditional banks

Credit Union

A credit union is a financial cooperative that is owned and controlled by its members. That means that credit unions provide a safe place to save and borrow money at reasonable rates. On top of that, they also offer many of the same services as banks.

The first thing you should know is that credit unions are not-for-profit organizations. They return their profits to their members in the form of different options available that we have listed above.

The second thing that is really important to know is that credit unions are member-owned and controlled. This means that every member has a say in how the credit union is run. Members elect a board of directors to set policies and make decisions about the direction of the credit union.

Third, credit unions are local organizations. The idea behind it is to serve the people who live or work in their community. 

Last but not least, credit unions focus on providing personal service to their members. The biggest advantage is that they know their members by name and take an interest in helping them reach their financial goals. 

Traditional Banks

Let’s now take a look at banks. Traditional banks are for-profit institutions that are typically owned by shareholders.

They offer services such as savings and checking accounts, loans, and credit cards. These banks make money by charging fees and interest on loans. On top of that, they also invest your money in stocks, bonds, and other securities.

Besides that, traditional banks have full power to control your account and have access to it at any time. Another thing to know about them is that you have three types to them: corporate banks, retail banks, and investment banks.

All three work differently, but at the end of the day, they still use your money to invest in the market for their own benefit.

The biggest advantage traditional banks offer is that you practically have ATMs almost anywhere, which can be a very handy thing when you need cash fast.

Credit Union Advantages

There are many advantages of credit unions over traditional banks, which you should know if you are interested in switching to them.

Credit unions are usually smaller, so they can offer a more personal touch. On top of that, they also don’t have shareholders, so they can focus on their members instead. This means that credit unions often have lower fees and better rates.

Also credit unions also tend to be more flexible when it comes to things like loans. They are more likely to work with you if you have a problem making a payment. And if you are thinking of starting your own business, a credit union can be a good place to get a small business loan.

If you are interested in them, we do recommend checking them online since a lot of them have their own sites with more information about them.

Credit Union Disadvantages

Although credit unions have many advantages, there are a few disadvantages worth mentioning that you should weigh out.

First, credit unions typically have smaller geographic footprints than banks. In other words, this means that if you travel or move frequently, it can be more difficult to find a credit union that meets your needs. Additionally, credit unions often have fewer ATMs and branch locations than banks, which can be inconvenient.

They also tend to offer fewer products and services than banks. For example, you may not be able to find a credit card or mortgage through a credit union. And if you do have an account with a credit union, you may not have access to certain features that are common with bank accounts, such as online bill pay or mobile deposit.

Finally, credit unions typically require members to meet certain eligibility requirements. For example, you may need to live or work in a certain area or be part of a specific organization in order to join a particular credit union.

Who Can Join a Credit Union?

Anyone can join a credit union. In order to join, you must open a savings account with the credit union.

Besides that, there are also requirements you will need to fulfill in order to join them. Depending on the area that you live in, they might require you to work in a specific part of the town or to be a part of a specific organization.

In other words, it’s available to anyone, although they can ask you to follow the above-mentioned requirements. You can also join a Federal credit union or FCU. This is a federal government agency.

What Are the Requirements for Credit Union Membership?

We have brushed briefly above what are some of the requirements for you to join a credit union, so let’s see some more of them.

In order to become a member of a credit union, you must first meet the requirements for membership. These requirements vary from credit union to credit union but usually include meeting certain eligibility criteria.

One example is that many credit unions require that you live or work in a certain geographic area in order to become a member. Others may require that you be a member of a particular organization or have some other type of affiliation. Still, others may have no membership requirements at all.

Once you find a credit union that you are eligible to join, the next step is to open an account with them.

When you open your account, most likely, you will need to deposit some money into it before you can start using it.

After you become a member of a credit union, you will be able to take advantage of all the products and services they offer.

This includes things like checking and savings accounts, loans, and more. Credit unions typically offer very competitive rates on their products and services.

Final Thoughts

In recent years, a lot of people have been moving to credit unions. This is because they tend to be more friendly-minded and are there to help.

At the end of the day, knowing the difference between and bank and a credit union is a must before you make any decisions. In this article, we have talked more about their key differences and what you need to consider.

Ultimately, the decision lies on you, but make sure to do the needed diligence before making a final step.