Susan raised an important point in her comment last week: Credit unions are a great alternative to banks, and I have neglected them in my writing here (despite the fact I am a satisfied credit union customer). And, in today’s economic situation, credit unions are looking even more attractive.
What are credit unions?
A credit union is a cooperative, non-profit financial organization that provides savings and checking products and extends credit to members. Unlike banks, which happily take profits from the money they lend, credit unions redistribute earnings to members in the forms of higher savings rates, reduced fees and, often most noticeably, lower interest rates on mortgages and other loans.
Just like FDIC-insured bank accounts, credit union deposit accounts are insured to at least $100,000 by the National Credit Union Share Insurance Fund (NCUSIF). Certain retirement accounts are insured to $250,000.
Where are credit unions?
Credit unions exist in cities and towns across the United States. Most often, credit unions offer financial services to employees of a large corporation or government entity. Some credit unions, however, serve members of social organizations like the Knights of Columbus, and others serve anybody living in a particular geographical region.
How do you join a credit union?
If you are an employee of a company or entity with its own credit union, you can walk in and join just as you would open a bank account. Most credit unions extend lifetime membership benefits to eligible individuals and to immediate family members.
Sometimes, credit unions extend membership to nearly anybody living in certain cities—or to anybody who is referred by an existing member.
For example, I belong to Digital Federal Credit Union (DCU) here in Massachusetts. DCU was formed for the employees of Digital Equipment Corporation—a company that hasn’t existed for years! Nonetheless, DCU is expanding rapidly. They’re opening new branches and even own the naming rights to a Worcester, Mass. arena. My father was a Digital employee when he joined DCU, and I later joined as family. Today, anybody referred by an existing member can join.
How do credit unions compare to banks?
On average, credit unions provide less expensive checking accounts and lower interest rates on mortgages, auto loans, personal loans, and credit cards than banks. Some may also offer attractive rates on savings accounts and certificates of deposit.
In addition to offering lower loan rates, credit unions work for their members rather than for shareholders. That means when you apply for a loan, they want to help you get approved and get the best rate your credit history justifies rather than earn shareholders the biggest profit.
That same cooperative, not-for-profit business model is what makes credit unions such a great choice today. When big banks were making recklessly risky loans a few years ago, credit unions were plugging away helping creditworthy members get the loans and rates they deserved, but could also afford. As a result, credit unions will be able to continue to offer members those same great services today—despite the national economic climate. Find a credit union near you.
Do you use a credit union? How has your experience been?