3 Reasons To Join A Credit Union

3 Reasons To Join A Credit Union

More than 100 million Americans currently belong to a credit union, according to industry statistics released in January. If you’re not a member of one yet, should you sign up?

Maybe so, because credit unions compare favorably to banks in a number of respects.

First, what’s the difference? Unlike a bank, a credit union is a not-for-profit financial cooperative owned by its members. Members contribute to the credit union’s pool of deposits and gain access to its financial services, such as loans.

Credit unions come in all sizes, from giants like Navy Federal, with more than six million members and nearly 300 branches, to local ones that count their membership in the dozens.

Though once relatively limited in their offerings, today’s credit unions provide many of the same services as banks, including checking and savings accounts, certificates of deposit, mortgages and auto loans, and more. Some are now expanding into business lending as well.

As with banks, credit union deposits are generally federally insured. While banks have the Federal Deposit Insurance Corporation (FDIC) behind them, credit unions have the National Credit Union Share Insurance Fund (NCUSIF). Both agencies cover up to $250,000 per depositor, per institution. If you have more than that to deposit, you can spread your accounts among several credit unions or structure the ownership of your accounts differently. For example, you could keep both a single owner account and a joint account at the same institution, with each receiving $250,000 in coverage.

You May Have More Of A Say

Unlike typical bank customers, the members of a credit union are owners and, as such, can have some influence in the running of the operation. That’s especially true with smaller and more local credit unions. Members vote each year to select a volunteer board of directors to oversee the credit union’s day-to-day management.

You Could Get Better Rates

In part because of their typically lower overhead, credit unions are often able to charge lower fees on loans and provide higher interest rates on deposits. Some credit unions also offer credit cards at favorable rates compared with the rest of the market.

You Might Earn A Dividend

One benefit exclusive to a credit union is the possibility of receiving dividends if its investments performed well during the year. On the downside, credit unions may have less geographic reach than their big-bank competitors, making it more difficult, for example, to find an ATM you can use in a distant city without paying additional fees. So if you travel widely and often find yourself running to the ATM, one of the larger credit unions with a national network may be your best option.

How to Join One

Unfortunately you can’t just stroll into any credit union and open an account. As tax-exempt organizations (another reason they are sometimes able to offer better rates, credit unions are required by law to restrict their membership by location, profession, religion, or fraternal association.

However, several major credit unions offer simple workarounds to the membership barrier. The Pentagon Federal Credit Union (or PenFed), for instance, allows you to gain the "bond of association" that legally defines its membership by joining a participating charity. A one-time dues payment to either Voices for America's Troops or the National Military Family Association ($14 and $17, respectively) makes you eligible to join.

To find a local credit union, check whether your company has one for its employees. Most credit unions also allow relatives of existing members to join, so ask your relatives if they belong to one. The degree of relation required can vary, but it’s often limited to parents, children, siblings, spouses, and grandchildren or grandparents. So if you’re a fourteenth cousin twice removed, you may have to look elsewhere. Other places to check include your place of worship or even your neighbors, who may know of a community credit union serving your area. If you’re new in town or starting from scratch, the National Credit Union Association offers advice on how to find a credit union in your area at its website, MyCreditUnion.gov.

Brian is a ValuePenguin Co-Founder. He previously worked in the financial services industry as an Associate at NASDAQ OMX and a Risk Analyst at Avenue Capital Group.