Why Choose a Credit Union Over a Bank?

A credit union is a financial institution that operates as a cooperative, owned and controlled by its members rather than by external shareholders. This structure means credit unions are not-for-profit entities, prioritizing the financial well-being of their members and the communities they serve. Unlike traditional banks, which aim to generate profits for investors, credit unions reinvest their earnings into the institution to provide benefits back to their member-owners.

Key Distinctions from Traditional Banks

Banks are typically for-profit corporations, owned by shareholders focused on maximizing financial returns. In contrast, credit unions are member-owned cooperatives, meaning the individuals who use their services are also its owners. This cooperative model emphasizes member satisfaction and beneficial financial products over shareholder wealth.

This difference in ownership leads to distinct governing principles. Banks operate to generate profit, which influences their policies and service offerings. Credit unions are guided by a “people helping people” philosophy, focusing on service to their members. Any surplus generated is reinvested to benefit members through more favorable rates, reduced fees, or improved services. Credit unions are also generally exempt from federal corporate income taxes due to their not-for-profit status, allowing them to operate with narrower margins than for-profit banks.

Direct Advantages for Members

Credit unions often provide more competitive interest rates on various financial products. They tend to offer higher interest rates on savings accounts and certificates of deposit (CDs), while also providing lower interest rates on loans such as auto loans, mortgages, and personal loans compared to traditional banks. For instance, in early 2024, the average 30-year fixed-rate mortgage at credit unions was approximately 6.73%, slightly lower than the 6.84% at traditional banks.

Credit unions also typically feature fewer and lower fees for common services. Members often encounter lower or no monthly maintenance fees for checking accounts, with typical charges ranging from $0-$10 at credit unions versus $5-$25 at banks. Overdraft fees are also generally less at credit unions, averaging around $26.61 compared to $31.24 at banks. Research indicates that credit union members may pay less than half the amount in total checking fees annually compared to bank customers, even for those with lower account balances.

Members also benefit from a reputation for more personalized and attentive service. As member-owned organizations, credit unions prioritize individual needs and aim to build lasting relationships. This often includes offering financial education and counseling services to help members make informed decisions. Furthermore, credit unions operate on a democratic principle of “one member, one vote,” giving each member an equal say in the institution’s governance, regardless of their deposit size.

Commitment to Local Communities

Credit unions extend their member-centric approach to a broader commitment to local communities. Their not-for-profit status allows them to reinvest resources directly back into the areas they serve. This often takes the form of local lending, supporting individuals and small businesses within the community. By keeping money within the local economy, credit unions contribute to job creation and economic growth.

Credit unions are also actively involved in various community support initiatives. They frequently offer financial literacy programs, workshops, and counseling to empower individuals of all ages with money management skills, including budgeting, saving strategies, and credit management. Many partner with local schools, non-profits, and other organizations to deliver these educational resources. This local focus allows credit unions to better understand and respond to the specific financial needs of the communities in which they operate, fostering financial inclusion, particularly for underserved populations.