You should care because credit unions hold a significant advantage over banks (a fact not lost on bank lobbyists calling for more credit union oversight). The advantage is that they don’t have to chase profit and they’re not pushed around by shareholders. What, a financial institution that doesn’t care about profits? Exactly. Credit unions are by definition, non-profit institutions.
They exist to serve their members, not shareholders. Who are the members? You are, when you make a deposit. You’ll actually be called a “member” not a “customer” when you join! How cool is that? In other words credit unions seek to serve the financial needs (checking, savings, lending etc) of their members in a way that does not create profits. Think of it as a financial coop. Your savings gets lent to your friends!
Okay but won’t I feel safer at a bank? I mean they’re “too big to fail” right? Here’s why you might consider using a credit union:
- It’s safe. Credit unions are insured just like banks are albeit through a different body – the National Credit Union Share Insurance Fund – up to the same amounts, $250,000
- They’re regulated. Credit unions are regulated just like a bank by the National Credit Union Administration – a federal agency. Rules are slightly different because of their non-profit status but operationally the same rules apply.
- Lower rates on loans. Why? Because they’re not trying to make a profit. Ideally they’ll price the loans at just the right spot to balance cost. A bank has to tack on extra for profit and payouts to shareholders.
- Higher rates on savings. Why? Lower overhead. A credit union usually serves a specific area or group which means it doesn’t need nearly as much administration. Oh, and they’re not trying to make a profit.
- Lower fees. See numbers 3&4.
There’s got to be a catch right. Well kind of. What you trade is breadth of services. A credit union isn’t likely to have a worldwide network of ATMs. Some may not offer credit cards (although many do). They may not offer mortgages (although many do). You’ll mostly find the basics – checking, savings, auto loans, personal loans etc. But hey, if it saves you money and you don’t care about those things a credit union might be a good choice for you.
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