16 Credit Union Pros and Cons

When discussions arise about financial institutions, many people automatically assume that banks are what the topic of the day happens to be. Credit unions are similar financial institutions, but with one key difference: they are not-for-profit institutions. In the United States alone, there are more than 7,000 credit unions that come in many different shapes and sizes. If you’re needing a place to secure your finances, then here are some pros and cons of a credit union to consider today.

What Are the Pros of a Credit Union?

1. There is an overall superior level of customer service received.
Credit unions are ultimately a cooperative that is owned by the members that utilize the financial institution. The goal is to make sure that every member has access to the financial services they need at affordable rates. Instead of trying to profit off of each member, credit unions look to provide a community level of support that begins with the customer service that is received with every visit.

2. Credit unions offer some of the best interest rates in the industry.
The savings that are received from lower overhead costs and the not-for-profit status are often passed along to the general membership. This cost savings can take come in many different formats, but the most common type of savings is through lower interest rates. This is especially true when it comes to vehicle loans and credit cards that allow rotating balances.

3. What you see is what you’re going to get.
Banks have a number of different stipulations that must generally be met in order for consumers to avoid paying numerous fees. This includes high minimum balance amounts, limited debit card purchases, and ATM withdrawal surcharges that are on top of fees charged at the machine. For credit unions, most accounts require no minimum balance. Debit cards can generally have unlimited use. This means the banking relationship with a credit union is very straightforward.

4. Credit unions charge lower fees than their counterparts.
Credit union members save more than $6 billion in fees every year when compared to people who choose to use banks. Instead of charging extra fees, many credit unions have chosen to eliminate low performing services instead. That way the cost to the members of that credit union is kept to the lowest levels possible and only the mandatory or necessary fees wind up being charged.

5. Many credit unions have relationships with one another.
If you’ve got a debit card with your local credit union, then there’s a good chance that you can access your cash through other credit unions across the country or around the world without being charged extra fees. Many have alliances with shared branches or union cooperatives that allow for ATM access, shared branching, and other benefits that banks just don’t provide. Even if you do have to go outside of your network, many credit unions will reimburse for charged fees to a certain extent.

6. Credit unions often offer flexible financial solutions.
Credit unions are just as safe as a bank when it comes to money storage, but they have one key difference: they offer the change to rebuild. People who have struggled with their credit for whatever reason often have a chance to get an account at a credit union, even if it may be on a probationary status. This gives households the chance to build a better financial profile for the future when other institutions might not give them a second look.

7. There is more overall security from a long-term perspective.
Although credit unions may not be as accessible as large retail banks, there’s a certain level of security in using them that banks just can’t provide. Credit unions are naturally balanced, whereas banks are geared toward earning profits. That means when the chips are down, banks are going to charge their customers more to access their own cash just to stay in business. Credit unions are member-owned, so everyone is more inclined to help one another.

8. Credit union credit cards offer similar conveniences and better rates.
In a 2011 Pew study, the average interest rate range for credit union credit cards was 9.9-17%. Federal laws actually cap the interest rates that credit unions can charge at 18%. On the other hand, the average range for banking credit cards was 12.99-20.99%. Low credit offers for a line of credit could have APRs above 30% since banks don’t have the same interest rate caps.

What Are the Cons of a Credit Union?

1. Not everyone can actually become a member of a credit union.
Not every consumer who needs a financial institution is eligible to open an account at whatever credit union they prefer. There are usually certain membership requirements, such as living in a certain community or working in a certain profession. There are even religious, university, and association affiliations that are legally practiced. There are also certain financial requirements that may need to be met for a membership to be approved.

2. Any rewards that are offered tend to be of a lower quality.
The greatest reward of joining a credit union is to not be exposed to the high fees that many banking institutions offer. There are still credit and debit card programs available, but many of them contain low reward offers – if they even contain rewards. At best, expect about 1.5% back on purchases using certain products.

3. There are very few perks that come with a credit union account.
Many banks have mobile financial solutions that allow people to check their money wherever they happen to be. This means banking apps, phone numbers that can be called collect, and other tools that help make money management an easier chore. Credit unions are more of a throwback to an earlier time of banking with few features or services. They might not be on the cutting edge of technological development, but credit unions can still meet virtually every financial need someone may have.

4. Credit union fees are rising.
The fees charged at credit unions may be lower than at other financial institutions, but those fees are on the rise. Regulatory issues that affect banks also affect credit unions and the money that is required to meet new laws and regulations must come from somewhere. This often means across the board increases, but these fees only kick in if an account is improperly managed in most circumstances.

5. Not every credit union has decided to join a network.
About half of the credit unions in the United States do not belong to branching services or a coop network. If a member’s credit union is not part of these networks or agreements, then they won’t receive the same networking benefits that members in other credit unions enjoy. Since not every credit union is created equally, it becomes very important to make sure the financial institution chosen can meet whatever specific needs you may have.

6. There are often fewer low risk investment options.
Many credit unions offer a number of similar low cost investment tools to help money grow. This includes CDs, money market accounts, and savings bonds. What they do not offer, however, is a wide variety of options for these investment opportunities. If a bank offers a dozen types of CDs, a credit union might offer 3-5. Money market accounts might offer different interest rates for different minimum account balances at a bank, while credit unions might offer one general rate at all. The good news is that these accounts are generally insured for $250,000, just like at a bank.

7. No interest is generally paid for checking accounts at credit unions.
Even if you maintain a massive balance every month in your checking account at a credit union, there’s a good chance that you aren’t going to see any positive gains from it. Most credit unions do not offer interest payments on checking account balances. Not every bank offers this either, but there is a better chance of earning a return in this instance when compared to a credit union.

8. All of your accounts become tied together.
You basically have one credit union account. If you have a vehicle loan and a credit card through a credit union, then a default could mean a repossession. A bankruptcy declaration could mean that you don’t have your debt wiped away. This unique problem is primary only with credit union members who get into financial trouble.

In 2011, a new holiday was created to celebrate the idea of transferring accounts from a bank to a credit union. There may be fewer conveniences with credit unions and the investment opportunities may be close to non-existent at times, but the benefit of lower overall interest rates generally overcomes the few soft spots in a direct comparison with banks. Evaluate these key points today from the pros and cons of a credit union and you’ll be able to make the decision that is right for you.