Banking Credit Unions Advantages of Credit Unions By Miriam Caldwell Miriam Caldwell Miriam Caldwell has been writing about budgeting and personal finance basics since 2005. She teaches writing as an online instructor with Brigham Young University-Idaho, and is also a teacher for public school students in Cary, North Carolina. learn about our editorial policies Updated on May 24, 2022 Reviewed by Margaret James Reviewed by Margaret James Twitter Peggy James is an expert in accounting, corporate finance, and personal finance. She is a certified public accountant who owns her own accounting firm, where she serves small businesses, nonprofits, solopreneurs, freelancers, and individuals. learn about our financial review board Some people enter into a banking relationship with their eyes half-closed, not considering the possible advantages of credit unions over banks. You may have heard people complaining about a bank's high service fees, interest rates, or lack of a personal touch, for example, but never taken the time to explore the alternatives a credit union offers. People complain about credit unions as well, but the complaints are often fewer and for different reasons. It boils down to the member-centric model that credit unions follow, which generally makes them more people-friendly and accessible than banks. Let's look at the most common benefits—and the downsides—of credit unions. 01 of 07 Customers First Weekend Images Inc./Getty Images When you open an account with a credit union, you become a member or owner of that credit union. A credit union doesn't have stockholders, so it works to please its members. This shift from a for-profit to a nonprofit model changes the business focus from generating the most profits possible to creating the best customer service and support experience. Thus, many credit union policies are more customer friendly. A credit union is also more likely to have rules in place that are more forgiving if you overdraw your checking, or share draft, account or have a lower credit score. And you may find that credit union representatives are more willing to work with you if you find yourself temporarily out of work or in another difficult situation. 02 of 07 Lower Fees One of the places banks make money is in their fees, including monthly service fees and loan origination fees. The fees associated with credit unions tend to be lower than those assessed by banks. Transfer fees are lower and, usually, there are no ATM fees charged by credit unions. Overdraft fees, which tend to be a big moneymaker for banks, are lower too. The lower fees mean that you can save money by joining a credit union. Note Whether you use a credit union or bank be sure to carefully read the policies regarding any fees that you may end up paying. 03 of 07 Better Interest Rates Credit unions offer higher savings rates and lower interest rates on loans. Since they're not focused on making profits but on covering their operating costs instead, credit unions are able to offer better interest rates to their members. The interest rates can be a lot lower for loans, and you may qualify for further discounts if you set up automatic payments. This means that their members are better served and might be able to save a significant amount on car loans, student loans, and mortgages. The interest you receive on deposit accounts is higher at credit unions than at most local banks, too, though it may not be as high as those offered by some online banks. 04 of 07 Working With Bad Credit A credit union may be more willing to work with you than a bank might be if you have poor credit or have difficulty qualifying for a loan. The loan officers will meet with you one-on-one and strive to find loan terms that will work for you. If you're interested in getting a mortgage loan but have a poor credit history, then a credit union may be your best route to financing your new house. They may also offer educational programs that will help you get control of your budget and develop better financial habits. Note If you have poor credit, be sure to apply for any loans in person. Some credit unions provide online loan applications, but if you apply in person you have the opportunity to satisfactorily explain your circumstances. 05 of 07 Qualifying to Join Credit unions have rules regarding who can join them. These rules may include requirements such as living in a specific geographical region, working for a specific employer, or going to school. Once you join a credit union, you can remain a member for life, even if you no longer meet the initial requirements for becoming a member. Your credit union may require that you maintain a savings or share account in good standing in order to keep your membership. Once you have that account, you can borrow money, open a checking account, or apply for a credit card. It may take some research, but finding a credit union that you can join is worth the effort. Many large companies offer memberships in credit unions, so start your search at your workplace. If you don't work for a large employer that provides credit union memberships, you may need to look around your geographic area or online to find one. 06 of 07 Credit Union Guarantee Credit unions don't belong to the FDIC as banks do. Instead, they belong to the National Credit Union Administration, which is comparable to the FDIC for banks. The same amount of money is guaranteed by the NCUA as by the FDIC, which means that your account would be guaranteed up to $250,000 if your credit union failed. As you shop around for a credit union that meets your needs, make sure the one you choose belongs to the NCUA so your funds are protected. 07 of 07 Disadvantages of a Credit Union In addition to imposing membership requirements that you may not be able to meet, credit unions tend to be smaller than banks, which can make it difficult to find a branch or an ATM when you travel or move. Many credit unions don't charge ATM usage fees within their networks, but if you're away on a regular basis, then a credit union may not be your best option. You may also have fewer options at a credit union than at a bank. Large banks usually offer a wide variety of checking and savings accounts, credit cards, loans, and investment accounts. You have more options to find the one that gives you the highest rewards and best suits your situation. Your local credit union may offer only one or a few types of each with no rewards. Another issue is that credit unions may not always stay abreast of cutting-edge banking technology, so your online experience may be limited to checking your balances and transferring funds between accounts. Do Your Homework Before you commit to a credit union or a bank, delve into both and read all the fine print associated with each product you're interested in. If a high level of personal service, better interest rates, and lower fees are more important to you than sophisticated tech, more convenience, and an extensive menu of banking products, then a credit union may be the choice for you, or you could opt to open accounts at a bank and a credit union to take full advantage of the benefits afforded by both. Frequently Asked Questions (FAQs) How do credit unions work? Credit unions work much like banks, but there are some differences. Credit unions require membership and are member-owned. Banks are investor-owned. Credit unions keep money in the community, which means that they can help locals borrow money to do things like buy homes. Why do credit unions require membership? Because credit unions are member-owned, you must be a member to use one. They were created for the financial benefit and well-being of their members, so only members can use their services. When you become a member of a credit union, you become a part owner. What do credit unions do with their profits? Any profits earned by a credit union are returned to their members in the forms of lower interest for loans, higher interest for deposits, and lower fees. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Experian. "Top 10 Reasons People Love Credit Unions." NCUA. "Comparison of Average Savings, Deposits and Loan Rates at Credit Unions (CUs) and Banks." Experian. "Can I Get a Loan From a Credit Union With Bad Credit?" NCUA. "How Your Accounts Are Federally Insured." MyCreditUnion.gov. "What Is a Credit Union?"