In today’s financial world everyone who is employed should have a checking and savings account opened. With these accounts and the use of direct deposit and the internet, doing personal banking has become very easy and cost efficient and in most cases you don’t have to leave the house.
The first thing most people think about when you mention opening these accounts is going to a Bank. Many people do not know about Credit Unions and there advantages. At first glance they seem to operate in a similar fashion. You have a standard checking and savings account, you can apply to take out a loan or mortgage, you can even get a credit card issued through your Credit Union. So what’s the difference and why should you consider a Credit Union.
The first difference between the two is that Banks are for profit corporations. To be healthy they must make money for their stockholders, sometimes this can lead to risky behaviors as we have seen in 2008. While not all banks had difficulties the whole industry has suffered because of the relaxing of regulations and searching out new and creative ways to turn a profit. Some of these new endeavors did not work out as planned and banks had to write down millions in losses.
Credit Unions are small, nonprofit consumer-organized savings and lending institutions, owned entirely by their member-customers. Their stated purpose is to encourage thrift among members, provide a source of consumer credit at a reasonable rate, and provide members an opportunity to use and control their own money in order to improve their economic and social position. The most unique feature of the Credit Union not shared by Banks is their membership requirement. To apply for membership a person must supply the usual personal information about them and purchase an initial share in the Credit Union. This usually is very nominal, about $5 to $10 dollars.
When we look back over the banking and credit crisis that came to a head in 2008, we know that many banks failed, some were merged with others to save them, and many were bailed out by the government. Did you here about any Credit Unions failing? Did you here about the government bailing out Credit Unions? The answer is no because the primary source for funds of a Credit Union are the “share accounts” or the deposits of its members. While they do use this pool of deposits to make loans to the membership they have a much better record than banks when it comes to defaults. You need to remember that the Credit Union is not trying to make a profit. They simply need to cover operating expenses, after that any remaining gains are paid back to the member base as dividends.
While the deposits at a Bank are considered very safe because they are insured by the FDIC (Federal Deposit Insurance Corporation), Credit Unions also share a similar safe guard. Since 1970 all state and federally chartered Credit Unions are regulated by the NCUA (National Credit Union Administration) and they administer a similar program FSLIC (Federal Savings and Loan Insurance Corporation) which safe guards the deposits of the Credit Union. Your money will be very safe whether you keep it in a Bank or Credit Union.
The cooperative nature of Credit Unions give them many advantages to consumers, especially to those just starting out, those that may be credit challenged, and folks that can not start an account that requires them to maintain a certain balance in their accounts. It is very easy to start your association with a Credit Union. They typically will give credit opportunities to their members when a Bank may not.
While they do have some fee’s related to their products these are not excessive or punitive as any excess funds will be paid back as dividends. You are also a member-owner of your Credit Union and as such you have the right to vote for election of officials, and to participate in the committees formed to run the Credit Union.
If you are trying to start or rebuild your credit, or if you are just not happy with the saving institution you are currently using, you do have options. While Banks work perfectly for many people there is an alternative. When shopping for a new savings institutions don’t sell yourself short. Look at all your choices and remember Credit Unions are a great option.
