If you have ever done research for a loan or shopped around for the best rate, it is likely that a credit union has appeared in those results. Since most don’t have the marketing power of a large bank and are often regional, even just local, there is often misunderstanding about what they do. There may even be confusion about whether you can utilize their services or not.
The first thing to understand is what a credit union is and how one operates. These institutions are similar to a bank in that they offer several financial and banking services. However, they typically do not have the footprint of a larger bank, meaning there may only be a few brick and mortar locations in any given area. The main reason for this is that their goal is to directly serve the members of the credit union.
In essence, they are non-profit organizations that either reinvest any revenue into operating expenses or use it to help other members with financial needs. Because of this status, a credit union does not pay state or federal taxes and can pass those savings on to customers. This is the key difference between this type of institution and a bank, explaining the core principle behind how a credit union works.
Myth Versus Reality
The second thing is to recognize the facts about credit unions. Being that regular banks are more entrenched in the public eye, there are often misconceptions about credit unions. Here are a few truths to be familiar with:
- Credit unions are not open to just anyone, but it is not always difficult to become a member. Often you just need to live or work in an area that the institution services.
- Money maintained in a credit union is not backed by the FDIC, however, it is similarly insured by the National Credit Union Administration (NCUA).
- The leadership of a credit union is often smaller and local, meaning you may not need to jump through as many hoops to present your case for a loan.
- Checking and savings accounts are not the only business that they do. Credit unions typically offer credit lines, auto loans, mortgages, HELOCs, and even retirement services.
Whatever your current and future financial needs may be, it is important to know that there are other options at your disposal besides a traditional bank. Credit unions can provide an array of services along with advantages you may not have known.