When you think of a credit union what comes to mind?
Credit unions, like banks, are federally insured financial institutions that provide banking services and loans for their members. They are non-for-profit cooperatives that are owned by all the members, as opposed to banks, which are generally owned by shareholders.
“Credit unions are often viewed as stodgy, low tech places that offer services like Christmas savings accounts and vacation loans. But, they can, and do offer much more than that,” says Coleen Pantalone, associate dean with the D'Amore-McKim School of Business at Northeastern University in Boston.
It's not your father's credit union. You may have some wrong ideas about credit unions because there are myths out there that are just assumed to be true. Here's a look at the facts and the fiction.
Myth: Credit unions are exactly the same as banks
Truth: Credit unions, are by definition, not-for-profit cooperative financial institutions owned and controlled by the members who do business with them. Profits are returned to members in the form of lower loan rates, explains David Beck, policy and media director of the Self-Help Credit Union.
Member-owners have equal voting rights when selecting the board of directors (one member, one vote), and any member in good standing may run for the board. Board members at most credit unions are unpaid volunteers. Banks, which are generally owned by outside shareholders, exist to make a profit for those shareholders. The board of directors usually receive compensation for their service, and exist to maximize shareholder value, says Beck.
While banks are insured by the FDIC, credit unions have their own form of insurance through the National Credit Union Administration. “If the crisis of 2008 and 2009 told us anything, credit unions may be safer,” says Trevor Shakiba, president of the wealth advisory firm, The Shakiba Group.
Myth: Only some people can join a credit union
Truth: “Many people still think you need to work for a certain company to join a credit union. That may have been trues in the 1960s, but many credit unions now have broad community charters, meaning that anyone who lives, works or worships in a city or region can be a member,” says Michael Poulos, president and CEO of Michigan First Credit Union. The rules were changed by Congress some 15 years ago to allow more people to access the benefits of credit union membership. To find a credit union in your community that you may be able to join, go to asmarterchoice.org and CULookup.com. Membership can be as little as $5 to join.
Myth: You can't get a variety of products and services
Truth: You can typically find the same sophisticated range of products and services as a bank and in much the same way a commercial bank might – online, using mobile apps, phone and in branches. Depending on the credit union, they may offer credit cards, debit, prepaid, online bill pay, mortgages, and more, says Ruth Susswein, deputy director, national priorities for Consumer Action.
Not only will you get a variety of products but you will likely get lower rates on credit cards and loans, lower minimum balances and services fees and higher interest rates on deposits than banks, says Karen Tyson, senior vice president marketing for the National Association of Federal Credit Unions.
“Credit union have significantly more flexibility to provide the best-possible lending opportunities for their members. They can review loan applications with their personal and community-specific insight, rather than having to follow strict national guidelines,” says Poulos.
There is a misperception that credit unions are not as technologically savvy as banks, but many credit unions see using technology to level the playing field against national banks, including online and mobile banking, remote deposit and a robust social media presence, says Poulos. “There are even areas where credit union technology surpasses what most national banks offer. At Michigan First, we have a network of MoneyWorks ATMs that allow for withdrawals in multiple denominations,” says Poulos.
A 2012 survey by Chadwick Martin Bailey found 85% of credit union customers were satisfied with their access to online and mobile banking services, compared to 66% of large national banks, according to Tyson.
Myth: Credit unions are not convenient
Truth: You might think that a local credit union with a small ATM network will leave you lagging when you hit the road. However, most credit unions are part of the Co-op Network, allowing you free access to more than 30,000 credit union and other ATMs nationwide, points out Poulos.
While some credit unions offer excellent customer service coverage, some still have limited hours of service in person and by phone, says Susswein.
Myth: Credit unions don't pay taxes
Truth: Credit unions are exempt from federal income taxes since they are not-for-profit and member owner. However, says Beck, credit unions do pay a variety of other taxes including social security and medicare taxes, and a variety of state and local taxes.
Says Pantalone, “For most people, credit unions are an excellent alternative to traditional banks. They offer the services most people need, they are convenient and they offer competitive rates and prices.”