Credit unions can be a good home for your financial activity, especially when it comes to loans. Unlike banks, they are nonprofits owned by their members, so they can be more flexible with the interest rates they charge.
However, credit unions might not be right for everyone. Consider your priorities to determine if joining a credit union is the best option for you.
Here are some of the pros and cons of credit unions.
The Pros
Better Interest Rates on Loans
Compared to traditional banks, credit unions typically offer higher rates on savings and lower rates on loans. You can take advantage of these better rates to put your financial life on a firmer foundation.
For example, if you have high-interest loans and are struggling to keep up with your monthly loan payments, joining a credit union and refinancing your loans might make sense.
High-level Customer Service
People generally come before profits at credit unions, because anyone who joins is considered a member rather than a customer. Members receive high-level, personalized customer service.
As a valued credit union member, you can expect respect and care no matter where you stand financially.
Lower Fees
Credit unions don’t pay federal taxes, so they usually charge lower fees. They also have fewer fees than banks.
A Variety of Services
Before joining a credit union, check into the services they offer. Many credit unions offer services similar to those you will find at banks, including:
- Checking and savings accounts
- Credit cards
- Mortgage loans
- Vehicle loans
- Money transfers
- Online banking
- Financial literacy resources
If you are looking to build credit and save money, joining a credit union might be a good option. However, it’s important to also be aware of the downsides that come with credit unions.
The Cons
Cross-collateralization
Credit unions have more latitude than banks to collect on unpaid loans. This is due to a concept called cross-collateralization.
Let’s suppose you have a mortgage, credit card and checking account at the same credit union. If you were to fall behind in payments on the credit card, the credit union could take the money out of your checking account, which might cause your mortgage check to bounce.
In comparison, a traditional bank must get a court order before taking money from either your checking or savings account to cover a delinquent loan, even if both the checking account and loan are at the same bank.
One way to deal with this reality is to keep your checking and savings accounts at a bank and your credit card, auto loan and mortgage at a credit union. Doing so means your checking account won’t be cross-collateralized with your debts.
This will protect you from the danger of having money taken out of your checking account to pay an auto loan or mortgage.
Fewer Branches, ATMs and Services
Generally, credit unions also have fewer branches and ATMs than banks. However, some credit unions have offset this weakness by joining networks of surcharge-free ATMs.
Also, some credit unions also do not offer as many services as banks, so it’s important to learn what they offer before opening an account or applying for a loan.
Membership Is Sometimes Restricted
The biggest con to credit unions is that in some cases, you must be a member of a specific group in order to join.
For example, a credit union might restrict membership to those who work for a specific company. However, many other credit unions open their membership to just about everyone.
Is It Better to Belong to a Credit Union or a Bank?
When choosing between a credit union or a bank, consider what is most important to you. If lower fees and better rates are the most important factors, a credit union may be the right choice.
However, a bank might be a better option if you are looking for more convenient access to your finances.
If you do plan to join a credit union, make sure your deposits are insured. While the National Credit Union Administration insures accounts up to $250,000 for most credit unions, some remain unprotected.
Natalia Brown
Chief Compliance and Consumer Affairs Officer
Natalia (Nat) Brown joined National Debt Relief (NDR) in 2010 as the 12th employee. She is a certified debt specialist, has risen through our organization over the last 14 years, and is a powerhouse in the financial community. Nat is now the Chief Compliance and Consumer Affairs Officer, focusing on representing and advocating for our clients by ensuring NDR upholds and follows best-in-class practices.
Previously, Nat served as Chief Client Operations Officer, where she played a vital role in NDR’s client journey, overseeing all client-facing operations of the business. Before that, Nat held various positions of increasing responsibility across client-focused teams, including Vice President, Client Success; Director, Training and Development; and Manager, Negotiations Department. Nat is passionate about helping people with the financial literacy and education needed to achieve financial freedom and peace of mind by getting, and staying, out of debt.
Beyond her dynamic role at NDR, Nat channels her passion for supporting and empowering underserved communities through extensive volunteerism across numerous nonprofits, including the nonprofit she co-founded, Inspiring Youth for Success (IYFS), New Women New Yorkers and CommonBondz, as well as industry organizations, including being on the Advisory Council for The American College of Financial Services’ Center for Economic Empowerment and Equality, and an executive board member for the American Association for Debt Resolution, where she is at the forefront of efforts to regulate and elevate the debt settlement industry.
Nat is a native New Yorker and a devoted mother to two sons who inspire her to be the best she can every day.
Learn more about our editorial team
Content Disclaimer:
The content provided is intended for informational purposes only. Estimates or statements contained within may be based on prior results or from third parties. The views expressed in these materials are those of the author and may not reflect the view of National Debt Relief. We make no guarantees that the information contained on this site will be accurate or applicable and results may vary depending on individual situations. Contact a financial and/or tax professional regarding your specific financial and tax situation. Please visit our terms of service for full terms governing the use this site.
