It may not be time to ditch your physical wallet just yet, but digital wallets offer several benefits.
What is a credit union?
A credit union is a type of not-for-profit financial institution controlled by its members, the people who deposit money into it. While traditional banks are run by shareholders whose goal is to maximize profits, credit unions return all profits to its members in the form of more favorable interest rates. Because of this, credit unions run considerably smaller operations and may serve more limited needs than traditional banks.
Just like a bank, credit unions allow people to deposit money, borrow money, and open a new credit card account. However, in a traditional bank, the owners are its shareholders, whereas a credit union’s shareholders are its members, so any profit the credit union generates goes back to them.
That could mean much higher interest rates on investment instruments like certificates of deposit (CDs) or savings accounts, much lower interest rates on loans and mortgages, and fewer banking and penalty fees. Members who maintain a minimum balance also have voting privileges that can help to elect a board of directors and influence the credit union’s policy. As in a bank, a credit union’s loans are sourced from its deposits, but only members can make deposits or borrow money. That means banking at a credit union means pooling your money for the benefit of all members.
Still, credit unions’ not-for-profit status means they hold fewer assets than traditional banks and may not offer as many financial products. Although they’re gaining in popularity, credit unions may also have fewer ATMs and brick-and-mortar locations than banks.
But credit unions are better positioned to serve the needs of their community. Members aren’t just a data point on a national ledger but an active participant in the credit union’s operations. Credit unions frequently comprise peers of an even smaller subgroup, such as university students and alumni, members of an actor’s guild, or municipal workers. That gives credit unions much more flexibility to work with their members on a case-by-case basis, so those with bad credit who remain in good standing at the credit union might have an easier time taking out a loan or opening a credit card.
As with traditional banks, all deposits are insured up to $250,000 with the Federal Deposit Insurance Corporation (FDIC).
See how credit unions stack up against banks with Bankrate’s comparison tool.
Credit union example
New York University Federal Credit Union (NYUFCU) is a credit union for students, alumni, and current and retired employees of New York University, or their immediate family members and caretakers. It offers many of the same services as traditional banks, like online banking, personal loans, and adjustable and fixed-rate mortgages. NYUFCU advertises rates for savings accounts at several tenths of a percentage higher than the national average and several whole percentage points lower for its loan products. Additionally, while it has just 15 ATM locations that are all located on or around the NYU campus, NYUFCU is a member of an ATM cooperative network that lets members use tens of thousands of credit union ATMs around the country for free.