Despite the devastating effect that COVID-19 has had on the economy, membership in credit unions is growing. During July, the fourth month of the pandemic, credit unions saw 327,000 new membership added to their ranks.
It turns out that putting the community’s financial needs before profit appeals to a lot of individuals. If you’re interested in learning how a credit union works, but don’t know where to start, then you’re in the right place.
In this article, we’ll be explaining how the institution works and why many people prefer it to traditional banking. Let’s get started!
What is a Credit Union?
A credit union performs a lot of the same functions as a bank. At most credit unions you can open a checking/savings account, apply for a loan, and use ATMs. However, the big difference comes in the form of ownership.
Banks are at the mercy of their stockholders. This means that at the end of the day they need to make a profit. That’s where credit unions differ. Instead of stockholders, a credit union is a cooperative made up of members.
Since they are not-for-profit institutions, any earnings are shared amongst the members. This non-profit status also affords credit unions tax-exemption status. These types of unions can be small or large depending on the number of people, organizations, or companies supporting them.
Since they aren’t publicly owned, credit union members can use ATMs without fear of expensive fees. However, the drawback is that there are fewer in-person locations to visit than traditional banks.
So, if you usually require in-person assistance when handling accounts, then a credit union may not be for you. Now that we know what a credit union is let’s learn more about how they work.
How Does a Credit Union Work?
All credit unions operate in basically the same way. Members contribute money to the union by purchasing shares in the institution.
The financial cooperative then uses the money to fund demand deposit accounts, loans, and other types of financial services typically provided by a traditional bank. So, if all the members are essentially owners, then how does the credit union decide on leadership?
Members typically vote on a volunteer board of directors when choosing leadership. And how does one become a member? Membership requirements can vary in intensity depending on the type of organization.
Typically it involves paying a membership fee and opening a checking account with a certain amount of money in it.
What Are Some of the Advantages of Joining a Credit Union?
As you can probably guess, there are a lot of advantages to joining a credit union that puts its members over profit. In terms of day to day operation, it’s much more refreshing to be treated like a member instead of a bank account number. However, there are also the more tangible benefits that we will go over now.
1. Better for Small Businesses
No one is struggling more during the pandemic than small businesses. Many of these institutions are relying on loans just to stay afloat. Unfortunately, traditional banks are battening the hatches when it comes to giving out loans.
That’s because they’re forced to react publicly to economic losses. This means that the small businesses that need loans are denied by traditional banks. Credit unions on the other hand have a lot less to risk when giving out small loans.
Moreover, every one in its membership is a part of the same community. This makes them much more likely to help out a member in need of a loan. If you want to learn more about how credit unions help small businesses, then check out our article.
2. Higher Interest Rates of Deposits
Since credit unions only need to make enough money to stay in operation, they can pass the earnings on to their members. One way they do this is by paying higher interest rates to people with checking, savings, or market accounts open in the credit union.
In many cases, they can offer double the interest rate that traditional banks offer — sometimes even more. So if you want to make money off of your money, then credit unions are a great place to start.
3. No Hidden Fees
To cover their operating costs, traditional banks are notorious for taking on loads of hidden fees. These fees apply to simple transactions, like moving money from accounts, or accessing an ATM.
Since credit unions aren’t looking to take your money you can expect little to no fees with these day to day transactions.
4. Lower Loan Rates
Typically, people associate credit unions with lower rates on their auto loans. However, these types of cooperative typically offer a wide range of loans, all at lower rates.
What’s more, it’s easier to sign up for these loans than with traditional banks. Why? Because credit unions have a lower risk involved when they offer the loan. As such, they’re able to offer them much more readily.
Tired of being treated like an account number? Join a credit union. When you deal with customer support in a cooperative, you’re talking to people who are your peers and neighbors.
As such, credit unions see much higher customer satisfaction than banks. What’s more, they also offer educational services. For example, many credit unions provide retirement planning services for people getting ready to retire.
Want a Credit Union You Can Trust? Get in Touch With Bay Area Credit Unions
We hope this article helped you learn more credit unions. As you can see, there is a lot to gain from joining a legitimate credit union. But, how do you find one that you can trust?
If you live in the Tampa Bay area, then look no further than Bay Area Credit Unions. We’re a coalition of fifteen non-profit organizations serving the Tampa Bay community.
Whether you’re interested in a savings account, or an affordable loan, we can help you. Get in touch with us today and learn about how we can both help each other.