On paper, credit unions have a creepy resemblance with traditional banks. Both of these institutions offer investment services, issue ATM cards and checks, make loans, and even hold deposits. However, when you zoom in on their services and general management, the differences start to emerge. Credit unions provide platforms for members to pool their savings together and lend money to one another.
These members usually have a common denominator, for instance the same trade union, employer, living location, or place of worship. Unlike banks that are designed to generate profit, credit unions use their earnings to rewards members and improve services. If you are still on the fence about the issue, or are considering an alternative for managing your finances, you may want to read on. Here are ten things you didn’t know about credit unions.
1. Credit unions are relatively easy to join
Previously, joining a credit union was extremely difficult. In fact, most eligible members had to be associated with an affiliated employer. Today, things have changed considerably. Although some credit unions are exclusive, most want your business and consequently have little to no membership requirements. In fact, most criteria is based on your current location. To know if you are eligible, visit ncua.gov, culookup.com, or asmarterchoice.org. To join, you’ll need to open an account and make a deposit of as little as $5. However, it will take some time and effort to find the perfect credit union for your particular needs.
2. Most have excellent service and customer satisfaction
According to the American Customer Satisfaction Index, credit unions are usually more client friendly than banks at any given year. In 2014, for instance, they were ranked second best not only in financial services, but across all industries with an index score of 85. This was nine points better than banks. Credit unions are designed to charge lower fees, but still manage to offer better customer service in almost every aspect, from websites to tellers. On the other hand, banks tend to be more efficient when you need to deposit a lot of money and work with a wide range of services, particularly financial services.
3. Credit Unions have relatively low loan rates
Yes, credit unions offer loans, and it’s perhaps their most inviting feature, particularly for auto loans. Credit Unions create a large pool money from members’ savings, and then avail it for loans. The lending can vary from small loans, which compete with the ludicrous rates of Pay Day lenders, to bigger loans at relatively lower rates when compared to other traditional lenders. For instance, when you take a $25,000 loan for a new car, the interest would be $800 less for a five-year duration than with a traditional bank loan, on average. Mortgage rates and home equity loans are only slightly lower, averagely.
4. They have competent technology
Credit unions have grown significantly in the technology department to surpass traditional banks. While megabanks are the pioneers of numerous high-tech features, most credit unions also offer mobile apps that actually facilitate mobile deposit. They also have online bill paying, person-to-person payments, and several other features.
5. Credit Unions are not-for-profit
Another interesting fact about credit union is that they are non-profit. Unlike most financial institutions, credit unions don’t pay dividends or issue stock to outside stockholders. Rather, they return their earnings to members in the form of lower fees, higher interest on deposits, and lower loan rates. This basically means that they are cooperatives owned by the same people who use their services. While they certainly make profits, the difference is what they do with it.
6. Some offer free life savings insurance
Credit Unions can also insure your Life Savings at no additional cost. This basically means that should anything happen to you, the savings will be passed over to your designated beneficiary in addition to the insured amount for up to £10,000. Death benefit insurance is only available to members who joined the particular Credit Union prior to their 70th birthday. The life savings insurance covers up to 100 percent of the total savings amount. Should the unthinkable happen before the expected age, your nominated beneficiary will receive 25 percent insurance plus your accumulated shares. However, it is important to note that any money deposited six months before death is not covered. Additionally, the insurance does not cover death caused by War, Terrorism, Suicide, or HIV/AIDS.
7. Credit unions do not pay income tax
Technically, since credit unions are not-for-profit and do not earn any income, they are not required by law to pay tax. All tax-exempt organizations are required by congress to be either not-for-profit or nonprofit. If credit unions were to pay income tax, it wouldn’t make a penny difference in how much tax you pay as an individual. However, it would have a significant impact on the amount you pay for their loans for such things as houses, education, and cars, as well as the dividends earned from credit union savings.
8. They offer better mortgage loan conveniences
Credit unions are one of the best institutions for borrowing mortgage loans. Most conventional lenders package these types of loans together and then sell them in the secondary market to investors. From this perspective, loans have to meet certain standards or else the lenders would have a difficult time selling them to investors. Credit unions, on the other hand, are not bound by these regulations. Most of their mortgage loans are kept in their portfolios, and they don’t have to worry about other investors. This means that they can write the loans based on their own standards, and, unlike traditional lenders, credit unions do not require you to have a high income when applying for a mortgage loan.
9. Lifetime membership
Well, interestingly, once you sign up for a credit union membership, you are a member for life. No need to panic. This simply means that you can remain in the credit union for as long as you want, regardless of any adjustments in your original qualifications. For instance, you can change employers or move to another city and still remain a member of that particular credit union.
10. Different terminology
Credit unions do not use the same deposit account terminology as traditional banks. Savings accounts, for example, are usually referred to as share accounts because it means you own a part of that credit union. A share certificate is used instead of a certificate of deposit, since you are earning dividends and not interest.