Pros and cons of credit unions

Credit unions are non-profit banks owned by members. Credit unions usually provide a higher savings and lower loan rate than regular banks, as they return profits to members rather than shareholders. However, you will need to qualify for membership and deal with fewer places or older technologies.

Here are some things you need to know about the pros and cons of credit unions:

Benefits of credit unions

Credit unions offer several important advantages over regular banks. The biggest advantage is the better rates as they work for members rather than for investors.

Better and lower prices

The profits of the credit union will return to members who are also shareholders. This structure allows credit unions to offer higher savings account fees and lower loan rates. Often you will find better yields on certificates of deposit (called stock certificates in credit unions) and more competitive fees for mortgages and car loans.

Larger unions, such as the Navy Federal Credit Union, offer a product lineup comparable to many banks. Find current accounts, savings accounts, money market accounts, stock certificates, mortgages, car loans, student loans, and credit cards.

Enhanced safety and security

Credit unions often provide greater stability during the financial crisis, as they focus on serving their members rather than maximizing shareholder benefits. This member-focused approach usually leads to more conservative investment strategies and lower risk lending practices.

Credit unions are federally insured up to $250,000 per person through the National Credit Union Agency (NCUA). This is the same protection you get at a bank through FDIC insurance.

Personalized Services and Member Focus

Credit unions are usually locally concentrated and are member-owned, providing more personalized customer service. You will likely be able to talk to the same representative and receive customized financial advice based on your particular situation.

Want to see how to compare credit unions? Check out our best bank guide for Bankrates and compare all your options.

Disadvantages of using credit unions

Credit unions have several drawbacks that could make traditional and online banks a better option for your needs. These limitations are primarily due to their small size and local focus.

Membership requirements limit access

Credit unions require clients to meet certain eligibility criteria that reside in a particular area, work for a particular employer, or belong to a particular organization. Many membership requirements are generous – sometimes you may only need small deposits or donations, but this creates additional steps that the bank does not need.

Limited branches and ATM networks

Credit unions tend to have fewer branches than traditional banks. Credit unions may not be close to work or living in you. This can be a problem unless the credit union is part of a shared branch network or a large ATM network such as AllPoint or MoneyPass.

Credit unions are generally smaller than major banks, so they may offer less sophisticated digital banking tools. For peer-to-peer payments, you can find mobile banking capabilities, unsleashed online platforms, or limited integrations with popular financial apps and services such as Zelle.

Online banks offer better rates

Credit unions usually beat traditional bank rates, but online banks often offer even higher savings account yields and a competitive financing rate by reducing fictitious costs.

Are credit unions good for saving?

Credit unions are good for saving, but not always the best choice. They usually pay better rates than regular banks, but often fewer than top online banks.

Credit unions work well when:

• You want good rates and personal service
• You prefer local community banking
• You need multiple products from one location
• You like financial education and member perks

If online banking is better:

• You want the absolute best rate
• You are only comfortable online banking
• No local branches needed
• Requires the latest mobile features

Compare current fees for high-yield savings accounts to see what you pay most.

Credit Unions and Banks: How They Difference

Credit unions and banks offer similar products, but operate under fundamentally different structures that affect rates, services and accessibility.

• Ownership and profit structure: Banks are for-profit institutions responsible for shareholders who expect the greatest return. Credit Unions are non-profit organizations owned by members, with all profits being returned to members with better and lower fees.
• Tax Status: Banks pay federal and state taxes on profits, while credit unions enjoy tax-free status as nonprofits. This tax advantage helps credit unions provide more competitive advantage to their members.
• Access and Membership: Banks are open to anyone who meets the account requirements and can pass basic eligibility checks. Credit unions require membership, but many are expanding eligibility requirements to serve the wider community.
• Technology and Innovation: Traditional and online banks typically offer more advanced digital platforms, mobile apps and technological innovations. Credit unions, especially small unions, can fall behind in digital banking capabilities.
• Geographical reach: Large banks often have a national or international presence with large branches and ATM networks. Credit unions are usually regional, but some are participating in shared networks that expand access.

For more information, check out Bankrate’s complete guide to credit unions and banks.

How to choose a credit union

To select the right credit union, you need to assess eligibility and the extent to which the institution matches both financial needs and preferences.

1. Research membership requirements. Start by identifying the credit unions that are eligible to participate. Check if you are eligible through employer, location, military service, family connections, or membership in a particular organization. With many credit unions expanding their membership standards, there may be more options than you would first think.
2. Evaluate convenience factors. Consider credit union branches, ATM networks and digital banking capabilities. If you prefer in-person banks, make sure your branches are conveniently located. For digital banking, test your mobile apps and online platforms to make sure you meet your needs.
3. Compare prices with prices. Look at the savings account fees, loan fees, and fee structure. Use Bankrate’s comparison tool to see how credit union offerings stack up against traditional and online banks.
4. Check your insurance coverage. Make sure your credit unions are federally insured by the NCUA. This provides $250,000 in protection for each depositor that FDIC Insurance offers at the bank.
5. Access product offerings. Make sure your credit union offers the specific products and services you need, whether it’s a specific type of loan, investment services, or a specialized account.

Conclusion

Credit unions can be a great option if they require better rates than regular banks and more personal services. But they aren’t automatically better than all other options.

Compare current prices and rates everywhere before deciding anything. The goal is to find the combination of products that will spend the most money in your pocket, while giving you the banking experience you actually want.