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Are credit unions better than banks?

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If you feel trapped by your bank’s abysmal savings rates, steep fees and hefty penalties, you may believe the only economical alternative is to withdraw your money and stuff it under the mattress.

But there is a way to have all the conveniences that banks provide, without the high costs. Try a credit union.

What are credit unions?

Credit unions are like banks in many ways. They are financial institutions that offer savings accounts, checking accounts, ATM cards, loans of all types, credit cards and more. Credit unions have been in existence in the U.S. since 1935, and are regulated by the National Credit Union Administration, or NCUA, an agency of the federal government. Like banks, credit unions have insurance on deposits of up to $250,000.

But that is where the similarities between banks and credit unions end.

The advantages

Unlike banks, credit unions are not beholden to outside stockholders or controlled by a paid board of directors. They are owned by members, operated by volunteer boards and are not-for-profit. The nonprofit status saves credit unions money; they are exempt from paying most state and federal taxes.

Instead of bottom-line savings and profits getting funneled back to stockholders or to executive pay raises as with many publicly held banks, the money goes back to members in the form of dividends, or sometimes in the form of a yearly bonus check.

Because credit unions aren’t looking to turn a profit, they can offer their members attractive rates on loans and better interest rates on savings and checking accounts than banks. Some even offer free checking.

The downside

If this all sounds like there may be a catch, there is. Credit unions usually are not open to the public. They are usually affiliated with an employer, labor union, a residential community or other type of organization or association, although some have begun to open up to the public. Still, the Credit Union National Association, a trade group, states that almost everyone belongs to at least one of these groups and may be eligible to join a credit union. To learn more, visit the Credit Union National Association website.