Credit unions: they’re not unions and they’re not banks. So what the heck are they? They are cooperative, not-for-profit financial institutions. Confused yet? Don’t worry. I will explain further.
How they’re like banks
First and foremost, credit unions are financial institutions. They offer the same types of financial services that you would find elsewhere. These can include savings accounts such as regular savings, certificates, IRAs, and club accounts; loans such as auto loans, home equity loans, mortgages, personal loans, and credit cards; and services like cashiers checks, notary public, and financial counseling. They also have ATMs and online banking and all that good stuff.
How they’re different
One of the most prominent differences you’ll notice at a credit union is your savings account is called a “share” account. This is because when you open an account at a credit union, you become a part-owner of the organization. Thus, your account is actually a share in the ownership. Likewise, checks are officially called by the name “share draft,” although some credit unions just call them checks to avoid confusion.
Since every account holder is a part-owner, all account holders are known as “members” or “member-owners” not customers. There are no stockholders involved, and all profits go back to the credit union itself. Plus, the board of directors is democratically elected from among the membership each year at the annual meeting. Everyone who has a share account in good standing has a vote.
Because profits go back into the credit union itself, credit unions often have better rates on loans and dividends on savings than other institutions. This is not always the case, but it is often the case. They are definitely worth looking into for larger loans such as auto and mortgages and for certificates and IRAs. Terms are often better too, and they are more flexible about repayment of loans. For example, credit unions are far less likely to jack up your rate because you miss a payment.
A common bond
The other thing that’s different about credit unions is that not just anyone can walk in and open an account. Members have a common bond, such as a geographic area, employer or volunteer organization. This goes along with the credit union philosophy of being a community of peers or “people helping people.” There are so many different credit unions, literally thousands, that there is bound to be one, and more likely several, that will welcome you as a member. A good place to start is to ask your employer and the heads of any organizations you volunteer for if those organizations have a relationship with one. Also, check out the websites listed at the end of this article. Once you join, any of your immediate family members can join as well.
How to join
Credit unions are free to join, however, you are required to have a minimum deposit in a share account of anywhere from $5 to $50 or more, depending on the credit union. This deposit stays on hand and earns interest and it can be refunded if you ever close your account. You can be a member for life, even if you leave the field of membership. Did I mention a credit union can be a great place to save for retiremen