If you are interested in opening a checking or savings account, obtaining a line of credit, or even a loan, you have several choices. Most people immediately think about heading down to one of the local or national banks to do their business. However, a bank isn’t the only option available. Another alternative that may align with your financial lifestyle and goals is a credit union. Credit unions offer many of the same financial products and services as a bank but with a more personalized experience, as well as other benefits.
Banks and credit unions are similar, however, there are also noticeable differences. A credit union is set up as a cooperative and is owned by its members. They are generally established by people who share similar interests such as living in the same community, working in the same industry, or following the same faith. Credit unions also have nonprofit status and are generally exempt from federal taxes.
Here are some of the pros and cons of banking with a credit union:
Pros of a credit union
• Lower borrowing rates – Unlike banks, the profits generated by credit unions return to the members. Because of this, credit unions generally charge lower interest rates on loans.
• Significant variety of products – Bigger credit unions may offer products and services on par with banks giving members a variety of options.
• Higher deposit yields – Credit unions can pay higher annual percentage yields (APYs) on savings products because, like lower borrowing rates, it is a method for returning profits to members.
• Money is insured – Many credit unions are insured by the National Credit Union Administration (NCUA) which provides coverage for your money should the credit union fail.
• Member-owned – If you are a credit union member you have voting rights on certain policies. This allows you to have a voice, so your needs are taken into consideration.
• Personalized service – Because credit unions are smaller and member-owned, they may provide more personalized service than a bank, especially a larger national bank chain.
Cons of a credit union
• Limited accessibility – Credit unions are not as widespread as banks and often have only one or two physical locations. In larger towns, these locations may be a significant distance from their
members.
• Membership is required – Joining a credit union can be difficult if you don’t align with their criteria. Some credit unions have strict requirements while others do not.
• Potentially fewer products and services available – Smaller credit unions may not offer as many products or services to satisfy all your needs.
• May not be insured – Not all credit unions are insured which could put your money at risk. If this is a point of interest for you, be sure to do your research. The NCUA manages the insurance of credit unions.
• Fewer ATMs – Credit unions tend to be smaller operations and therefore have fewer ATMs for members to access their money.
Consider consulting a financial professional
Depending on your banking preferences, a credit union may be a great option for you. If a credit union is of interest to you and your financial goals, you have to choose which credit union to use. Determining which credit union works for your financial needs can help mitigate some of the stress and anxiety that comes with money management and safeguarding your assets. Consider consulting a financial professional to weigh the financial implications your decisions have on your short- and long-term financial strategies and goals.
Important Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
Sources:
Credit Unions vs. Banks: What's the Difference? (investopedia.com)
Credit Unions vs. Banks: How to Decide - NerdWallet
Credit Union vs. a Bank | Banking Advice | U.S. News (usnews.com)
Credit Union Vs. Bank: What’s The Difference? – Forbes Advisor
Pros and Cons of Banking With a Credit Union - Experian
Pros And Cons Of Credit Unions | Bankrate
This article was prepared by LPL Marketing Solutions
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