10 Facts About Credit Unions
Key Takeaways
- Credit unions are not-for-profit financial institutions that require a membership to join.
- Credit unions are governed and insured by the NCUA, similar to how the FDIC oversees banks.
- In order to join a credit union you have to open a share account, which is similar to a savings account but pays dividends instead of interest.
If you’re looking for a new place for your checking and savings accounts, don’t limit your search to banks. You may discover credit unions have more to offer than you think.
Credit unions are not-for-profit organizations that operate on a philosophy of people helping people, says Christopher Roe, senior vice president for TruStage, a provider of insurance, investment and financial technology solutions for credit unions. Unlike banks, which are publicly owned by stockholders, credit unions are cooperatives and member-owned.
“I think a lot of people feel that credit unions are smaller because they are more member-focused, but credit unions can be just as powerful as banks,” says Jay Ferrans, president of JM Financial & Accounting Services.
It’s a common misconception about credit unions. “(People) don’t think of us as full-service,” says Jacqui Kearns, managing director at Strategic Resource Management, an advisory firm that works with financial institutions. However, many credit unions offer the same consumer products and loans as banks.
Here are 10 facts it’s important to know about credit unions:
1. Credit Unions Aren’t FDIC Insured
The Federal Deposit Insurance Corp. was created in 1933 in response to a string of bank failures. As an independent agency of the federal government, the FDIC monitors banks for financial soundness as well as compliance with consumer protection laws. However, the FDIC doesn’t oversee credit unions.
Credit unions are subject to other government agencies. Credit unions are governed by the National Credit Union Administration. Federally chartered credit unions are subject to NCUA regulations, while state-chartered institutions are overseen by state regulatory boards.
2. Most Deposits Are Insured Through the NCUA
All federal credit unions and many state-chartered credit unions are federally insured by the NCUA up to the same $250,000-level as the FDIC. This insurance provides peace of mind that money won’t be lost should a bank fail. Some state-chartered credit unions might be covered by private deposit insurance instead.
3. You Must Be Eligible to Join a Credit Union
All credit unions have a field of membership in their charters that defines who is eligible to join. “The premise is that there is a common bond among credit union members,” Roe says.
While membership is limited, joining a credit union is likely easier than you imagine. Generally, you are required to live, work, worship or study within an area that a credit union is chartered to serve. Even if you are outside the geographic area of a credit union, you may be able to join if you have a family member who already belongs to the institution, or if you meet other criteria. For instance, Chartway Federal Credit Union will grant membership to anyone making a $10 donation to the We Promise Foundation.
4. Once a Member, Always a Member
Once you are a member of a credit union, you can remain a member regardless of what happens to your original qualifications. “The great part is you are a member for life,” Kearns says. That means that even if you move to a new city or if you change employers, you can keep your credit union membership.
5. Credit Unions May Use Different Terminology
The deposit account terminology at a credit union is a little different than at a bank. Credit unions have share accounts and share certificates versus savings accounts and certificates of deposit. Despite the different names, these accounts function similarly.
“The biggest difference in terminology would be members instead of customers,” Ferrans says. Credit union members are owners of the institution, unlike banking customers.
6. Every Member Has a Vote
As an owner of the credit union, members are entitled to vote for who sits on the board of directors. “Each credit union member gets one vote regardless of how much they have in their account,” Roe says.
7. You Must Have a Share Account
All credit unions require you to maintain a share account with a minimum balance – even if you just want a loan. A share account is the equivalent of a savings account at a bank, though it pays dividends instead of interest. It indicates that a person has a share of ownership of the account. The required minimum balance may range from $1 to $50, though minimums on the lower end are most common.
8. Free ATMs Are Generally Available
Many credit unions belong to nationwide ATM networks. This gives you surcharge-free access to thousands of ATMs around the country. As a result, free ATM access for credit union members can be as widespread as that available through big banks.
9. Credit Unions May Share Branches
Even the smallest of credit unions may offer their members access to multiple branch locations thanks to the shared branch network that allows members to perform many banking transactions at an office of another credit union within the network. This means credit union members may be able to access thousands of branches across the nation.
10. Not All Credit Unions Offer the Same Features
Before opening an account at a credit union, confirm what products and features it offers. While large federal credit unions, such as Navy Federal Credit Union and State Employees’ Credit Union, offer services on par with most banks, smaller credit unions could be more limited. For instance, some may not offer mortgages or mobile banking apps. Even larger credit unions may be restricted in what they can provide business customers. “(They) cannot lend on the commercial side as much,” Kearns says.
“Almost all credit unions in relation to the largest banks are small,” Roe says. However, that’s not necessarily a bad thing if you’re looking for a financial institution that offers attentive service and a personalized touch.
