For years, banks have been the first thing that comes to mind when figuring out where to deposit your money. However, in recent years, people have shifting their money to credit unions in response to the irresponsible wary that big banks have handled their money.
Many see credit unions as a way to invest their money without worry that their bank will gamble with their retirement on Wall Street. However, the stigma surrounding credit unions is that regardless of how safe they are, they provide less options and opportunities for growth than larger banks. This is simply not true. In fact, you can actually save money by switching to a credit union.
How Credit Unions Differ
The main difference between banks and credit unions is that credit unions are not for profit entities. Banks are entitled to their shareholders first and their customers second, whereas credit unions are owned by the members who invest in the union. These members appoint a Board of Directors who ensure the credit union can compete with existing banks by offering free ATM use, electronic banking, free checking and high interest savings accounts.
These perks are often better than what banks offer, and typically have much lower fees. Many banks reap an inordinate amount of money by charging their users fees for ATM use, whereas credit unions generally allow you to withdraw your money from anywhere.
Credit unions also have a reputation for lower borrowing rates and higher interest on savings. This is because as a not for profit organization, the credit union is not entitled to pay out dividends to its shareholders. The dividends are instead paid out to its members.
As the credit union is tied to the local community, you can take advantage of other free and inexpensive offerings provided by the organization. This includes coupons on groceries, discounts on tickets to the local fair or amusement park, as well as affordable life and theft insurance products.
Many are under the impression that there money is safer in a bank, when the financial crisis proved that without government intervention, even the largest banks can fall into bankruptcy due to their risky behavior. Like banks, credit unions are federally insured for up to $250K, through the National Credit Union Administration (NCUA). Unlike banks, however, there is no fear that your local credit union is involved in credit default swaps or other investment vehicles that are essentially forms of high stakes gambling.
An even safer place to invest your money would be a federal credit union. These credit unions allow new members based on specific criteria, such as being a former member of the armed services. Doing some research will inform you of the various local and federal credit unions in your area, and how they compare with larger banks. You can also check various ratings organizations to see how well a credit union is perceived in terms of reliability.
Ultimately, while they are much smaller than large banks and hold significantly less capital, credit unions take none of the gambles and extreme risks with your money that the larger banks routinely take in order to increase the profits of their executives and shareholders. Conversely, the local credit union is there to serve your interests, and as a non-profit organization you can be secure in the knowledge that your money is safe.
About the augtor: Kate Edwards is a writer for creditreport.org.uk and covers a wide range of personal finance topics.
Credits: Photo courtesy of Tracy Olson.