When considering your finances—be it saving, settling bills, or accumulating interest—most people envision a bank as their go-to institution. Alternatively, you might conjure a whimsical image of Scrooge McDuck diving into a sea of gold coins. However, the reality is that the average individual possesses over five bank accounts despite the lackluster experiences that can sometimes accompany banking—where fees and customer service aren’t always favorable. Banks generally serve as the primary destination for holding your funds, earning minimal interest, depositing paychecks, and managing bills.

Yet, banks are not the sole option available. If you’re seeking a secure environment for savings along with basic banking services, it may be beneficial to explore credit unions. While the count of credit unions has dipped in recent years to approximately 4,600 federally insured establishments across the nation, their member base has witnessed an upward trend, boasting nearly 140 million members last year.

There are compelling reasons contributing to the increasing popularity of credit unions—considerations worth your attention as well.

Key Differences Between Credit Unions and Banks

At first glance, credit unions appear similar to banks, providing a variety of comparable services such as checking and savings accounts, loans, and numerous financial products. However, their primary distinction lies in their operational foundation: banks function as for-profit entities, whereas credit unions are not-for-profit organizations. This translates to banks using your deposits for investment ventures while offering you a fairly meager interest rate, whereas credit unions channel profits back to their members and into community enhancement.

Another differentiation pertains to their membership. Banks are accessible to anyone, although they reserve the right to decline applications or close accounts under certain conditions. In contrast, credit unions operate on a membership basis, often imposing specific criteria determined by the National Credit Union Administration (NCUA). This may involve aligning with particular professions, affiliations to groups like schools or churches, or residency in designated areas. Similar to banks, the deposits in credit unions are insured up to $250,000, but the NCUA governs this insurance rather than the Federal Deposit Insurance Corporation (FDIC).

While credit unions function similarly to banks in many respects, their not-for-profit nature and emphasis on community engagement provide several advantages that make them an appealing choice.

Advantages of Credit Unions

Opting for a credit union can yield numerous benefits over traditional banks:

• Enhanced savings rates. Since credit unions aim to support their members, they frequently provide substantially higher rates on savings accounts and certificates of deposit compared to banks, with few exceptions.

• Lower loan rates. Credit unions typically offer more favorable terms on loans and mortgages, such as fixed-rate options for 15- or 30-year terms. For instance, the interest on used car loans can be notably lower—averaging 1.5 percentage points less than what banks charge.

• Reduced fees and lower minimum balances. Credit unions generally impose fewer and lower fees compared to banks. Studies show that checking account fees at credit unions can be 79% less than those at national banks and 54% lower than at smaller community banks.

• Community involvement and member influence. A unique aspect of credit unions is that joining one makes you a co-owner. This provides you with voting rights in choosing board members, setting policies, and influencing investment directions. Consequently, credit unions often display greater commitment to their communities, readily providing loans to local businesses considered too risky by banks.

• Increased flexibility. As a member and co-owner, obtaining loans or arranging financial services is typically more straightforward at a credit union than at a bank. While qualifications still exist, credit unions are frequently more accommodating to those facing credit challenges or individual circumstances that banks might reject.

Potential Drawbacks

One potential disadvantage of credit unions is their ATM accessibility: Some may not have extensive ATM networks. However, many credit unions participate in third-party networks like Allpoint or MoneyPass, potentially expanding your access—worth verifying if ATM use is a priority for you.

While credit unions present numerous benefits, banks may still be the preferable option in certain scenarios. Generally, banks provide a broader range of services. Moreover, due to membership restrictions, you might find it challenging to locate a credit union that suits your needs. Additionally, larger banks often present a national (or international) footprint paired with sophisticated online tools that may outpace those of many credit unions. Nonetheless, for those seeking a community-oriented banking experience with an emphasis on member involvement, a local credit union can offer unparalleled advantages in terms of local engagement, cost, and service quality. For a starting point, explore how to find one.