7 Benefits of Credit Unions (2024)

FAQs

What are the benefits of a credit union? ›

Credit unions can have several potential advantages over traditional banks, including: Lower or fewer banking fees. Higher deposit interest rates. Better borrowing rates.

Credit unions typically offer a higher interest rate on the money that its members deposit than banks can offer to their customers.

Credit unions tend to offer lower fees than banks. This is because of their not-for-profit business structure and their tax-exempt status. Rather than paying shareholders, credit unions are able to reinvest their earnings back into their members, decreasing the need to charge fees such as overdraft penalties.

Labor unions benefit their members by negotiating better pay, benefits, and working conditions. Critics maintain that union contracts make it more difficult for a company to fire unproductive employees, and that they increase long-term costs which decreases competitiveness.

Better interest rates: Credit unions typically offer higher interest rates on savings accounts because they have lower overhead costs than banks. Similarly, they offer lower interest rates on loans. Customer service: Credit unions pride themselves on offering better customer service than banks.

The pros of credit cards range from convenience and credit building to 0% financing, rewards and cheap currency conversion. The cons of credit cards include the potential to overspend easily, which leads to expensive debt if you don't pay in full, as well as credit score damage if you miss payments.

Advantages of using credit include the ability to make purchases when cash inflow is low and the convenience of not carrying cash or checks.

Credit unions are not taxed and, as a result, well-run credit unions are often able to charge lower loan rates and pay slightly higher deposit rates than banks. The National Credit Union Administration is the primary regulator of federally chartered credit unions.

Since credit unions don't have shareholders to appease, their primary objective is to offer the best financial services to their members at the lowest possible cost. As a result, credit unions are less likely to take on risky investments that could jeopardize their financial security.

What makes a credit union stand out? ›

Credit unions operate to promote the well-being of their members. Profits made by credit unions are returned back to members in the form of reduced fees, higher savings rates and lower loan rates.

Some have argued that credit unions are inherently inefficient because of their one-member, one-vote governance structure.

Pros of credit unions

Credit union profits go back to members, who are shareholders. This enables credit unions to charge lower interest rates on loans, including mortgages, and pay higher yields on savings products, such as share certificates (the credit union equivalent of certificates of deposit).

Benefits of Credit Unions in Communities. Credit unions are committed to strengthening their local communities in a variety of ways, such as delivering financial education programs, funding charitable causes, hosting community events and providing loans and grants for small businesses and neighborhood development plans ...

Weaknesses of Credit Unions

The membership of a credit union is restricted to a specific community, most often a religion, profession, or geographic location. For a member to be eligible to join a credit union, they must belong to a group listed in the credit union's charter.

The Bottom Line. Credit unions can be ideal for a low-interest loan, lower mortgage closing costs, or reduced fees, but you'll need to qualify for membership. Larger banks may offer you more choices regarding products, apps, and international or commercial products and services, and anyone can join.

Any income the credit union generates through interest, fees and loans is then used to fund community projects, reinvest into the organization or provide services that directly benefit members, like paying higher savings interest rates.

Joining a credit union can help build credit, provided you follow the right steps. For example, if you join a credit union with bad credit, you may want to consider getting a secured credit card to improve your credit score. This is also an option if you're new to credit.