By Samantha Paxson
Chief Marketing Officer at CO-OP Financial Services
For those with only a few years of experience in the professional workforce – or those joining it for the first time – the euphoria of getting a paycheck has probably been tempered with the reality of bills and savings. Car payments, rent, student loans, saving up to buy a house, all of that counter-balances the excitement of earning real money for the first time.
But it’s not just about earning that paycheck; millennials enjoying their new-found economic independence must decide where to deposit that money. Banks large and small are often the first to be considered. However, there’s another option that is commonly misunderstood: the credit union.
What are credit unions and why are they worth considering? Let’s go over some of the key factors involving credit unions.
What is a credit union?
Credit unions are financial institutions owned and operated by members as a financial cooperative. All account holders are members, with collective total assets used for banking purposes. Credit unions are not-for-profit entities, meaning that their purpose is to service the best interests of membership rather than maximize profit margins (note that this is different from a non-profit organization).
Where do I find one?
There are 57,000 credit unions around the world, including 6,400 in the United States, so chances are there’s one near you. Many of these credit unions belong to ATM and branch networks and share their resources (something that banks don’t do) – giving them 30,000-plus ATMs and 5,400 branches. This allows easy access to ATM usage without fees, and enables visits to thousands of participating credit union branches as if the member was right at home. A good place to look for a credit union is http://www.asmarterchoice.org, and you can determine if the credit union belongs to an ATM or branch network here: https://co-opcreditunions.org/locator.
What does it offer that banks do not?
In general, credit unions are known for their lower loan rates, lower fees, even greater access to free checking (offered by 70% of credit unions; source: Bankrate). This will vary from credit union to credit union, but the very nature of the credit union as a not-for-profit organization with members positions it as a better pro-consumer choice. This is also reflected in a higher standard of dedicated member care as opposed to regular bank customer service — in fact, surveyed customers give credit unions a 93% “highly satisfied” rating compared to 69% for the four major banks (source: Consumer Reports).
What are the drawbacks of a credit union?
There are eligibility requirements based on residence or workplace and the like, but virtually anyone can find a credit union near them that they can join immediately. Also when looking for a credit union, keep an eye out for the “CO-OP” logo to make sure the institution belongs to the largest network of ATMs and shared branches. CO-OP-affiliated institutions also have access to the latest in mobile, digital and fraud-protection technology available in financial services.
Are my deposits federally insured?
Yes. Just as bank deposits are FDIC-insured, credit union accounts are given the same protection under the National Credit Union Administration (NCUF). In fact, consumers tend to feel more safe with credit union deposits compared to banks (85% to 68%; source: FILENE). Simply look for the NCUA logo on a credit union’s materials, and you’ll know your deposits are safe.
Can I use a credit union to finance a car/house/etc.?
Credit unions offer much more than simply depositing your paycheck and collecting interest. You can take out a loan to finance a car, home or other item through a credit union. Even if the credit union is not your primary financial institution, it can still be an option for your lending and financing needs. In fact, many people find they prefer credit unions when compared to banks thanks to generally lower rates and fees; a recent survey found credit unions offering a nearly 2% lower rate than banks (source: US News). Credit unions are about ensuring you get in the best possible loan to ensure you don’t get deeply into to debt or financial hardship. They are not about selling you into the highest rate so they make money.
In addition, credit unions tend to hold onto the loan over the course of its entire life cycle, whereas banks will often sell mortgages to other banks. Credit unions also usually are more accepting of people with mediocre or bad credit scores, giving them access to better financing rates that may simply be impossible at large institutions.