A credit union is a financial cooperative that provides traditional banking services to its members. Credit unions can be small purely voluntary operations or large entities with thousands of participants across the country.
Created, owned and operated by their participants, credit unions are tax-exempt nonprofit businesses and can be formed by large corporations, organizations or other entities for the benefit of their employees and members.
How a credit union works
A credit union follows a simple business model. Members of the credit union pool their money by purchasing shares in the cooperative for loans, demand deposit accounts, and other financial products and services.
The income generated by a credit union is used to finance projects and services that benefit the community and the interests of its members. All profits are exempt from corporation tax.
Credit unions have fewer physical locations than traditional banks, which can be a drawback for members who prefer in-person service and also offer fewer options than a traditional bank. But they can offer their members better rates and more ATM locations because they are unlisted.
Traditionally, joining a credit union required a common bond, either working for the same company, in the same industry, or living in the same community. But in recent years, credit unions have relaxed these requirements to allow the general public to become members.
To become a member of a credit union you need to open an account, once you have an account you become a member and partial owner. You will participate in the affairs of the union; you will have a vote for the appointment of the board of directors as well as other decisions relating to the union. Each member gets an equal vote, which means it is not based on the amount of money in their account.
Once you are a member you can then access the services they offer, these can include loans, savings accounts, ISAs, prepaid debit cards, insurance products and in some cases, mortgages.
Benefits of credit unions
The benefits of credit unions include:
Offer better rates
Members of credit unions can often get better interest rates on loans than those offered by traditional banks. They also offer higher interest rates on accounts which means members can earn more on their deposits.
In addition to better rates, credit unions also offer lower fees than commercial banks. In most cases, it will cost members less to have an account with a credit union than with a traditional bank.
Pay dividends and give the right to vote
As a member of a credit union, you will receive dividends and have voting rights that will give you a say in important decisions affecting the credit union.
Disadvantages of credit unions
The disadvantages of credit unions include:
Membership fees and minimum deposits
When you join a credit union, you will need to pay a membership fee and make a minimum deposit. Membership fees may vary from one credit union to another, but are generally between $ 5 and $ 25, the minimum deposit amount may also vary depending on the credit union.
Not all are insured
Not all credit unions are insured, some are NCUA insured, but others may not.
Fewer services and limited branches
Credit unions have fewer branches than traditional banks, which can be off-putting for members who prefer in-person services and face-to-face advice. They also offer fewer services than commercial banks because of their size and the funds to which they have access.