Credit Union Basics – What Is It And How Does It Compare To A Bank?

The credit union is a less talked about alternative to a bank. It provides very similar basic financial services to customers. You can find checking, savings, and money market deposit accounts as well as mortgages and other loans there. Below is an explanation of what they are, and how they are different from banks.

Organization

Credit unions were originally created as a way to serve the financial needs of a specific community. These communities can be the residents of a city, employees of a certain company, students and faculty of a school, etc. Besides being customers, the members are also its owners. They elect a volunteer board of directors and have more say in the investment decision process. This is because the purpose of the organization is to directly benefit the members.

Membership

Joining one nowadays is not as difficult as it used to be. Most extend their membership beyond those whom they were originally intended to serve. Generally, even if you don’t belong to a certain community, you can still become a member. Some will ask you to make a donation to a certain charity they support. If you belong to an associated organization, are related by blood or marriage to a member, or even live near a branch, you may be eligible to join.

Not-For-Profit Model

Unlike banks, credit unions operate under a not-for-profit format. Because their main purpose is to serve their members, they use their profits just to cover the costs and reinvest the rest to offer members better deposit account rates and lower borrowing costs. Banks, on the other hand, turn profits in order to answer to their investors. Because of this, however, credit unions tend to provide more basic financial services instead of a larger variety by banks.

All in all, credit unions are very similar to banks in that they’re great providers of basic financial services. Like banks, your deposits under $250,000 are insured by the United States government. Instead of being insured under the Federal Deposit Insurance Corporation (FDIC), though, it is under the National Credit Union Administration (NCUA). I hope this makes it clearer what credit unions are and why they exist. Be sure to take them into consideration the next time you are looking to take out a loan or open a deposit account.

Direct Deposit: Financial Opportunities from your Credit Union

Years ago, the idea of “direct deposit” was regarded with considerable suspicion. Employees thought their companies were somehow benefiting from this service. Some of them thought they were not in control of their money, and many felt that the system would somehow break down, and they would be without funds when expected, and they would not have a “real” check to prove they did have the money coming. Times sure have changed! Now it is a rarity not to have direct deposit services available to you. And more and more employees are realizing the considerable benefits direct deposit can offer.

When you receive a “paper” paycheck, you must take that check to your credit union to deposit or cash it. Depending on when you can arrange to physically take the check to the credit union, there could be several days of delay before the funds are deposited to your account. Not so with direct deposit. Funds are available in your account immediately upon deposit, and there is no delay in accessing them. Many businesses have their headquarters or payroll departments in a central location. Should inclement weather, or poor road conditions, or even a transportation strike intervene, the physical checks could be delayed by several days. Again, weather and other conditions won’t interfere with paying employees who receive their pay through direct deposit.

Another concern with paper checks has to do with theft. Would you believe that millions of Social Security and government checks of one kind or another are stolen or late or somehow misdirected each year? Weigh that against the 39 million Social Security checks direct deposited each year. It may be hard to believe, but NOT ONE of these checks has ever been lost. Some people worry that they will not know whether or not the correct amount has been deposited. They may not be aware that earnings statements are sent to those who receive their checks by direct deposit. So you do receive the information as to what has been deposited. You just don’t have to worry about making the physical deposit yourself.

There are more reasons to consider direct deposit if you are not using it today. If you can be assured that your funds are deposited at the earliest possible moment available, as they are with direct deposit, then your money is working for you at the earliest possible moment. Most credit unions have the ability to divide up your check and deposit some into your usual checking account, and some into various savings or investment instruments. And the quicker the deposits are made, the sooner you are earning money on them, right? Just another reason to convert to direct deposit.

Did you know that your credit union can even arrange to direct deposit your income tax refund? Well, it can. You simply need to fill in your credit union’s 9-digit “routing number” in the appropriate place when you do your return as well as your individual credit union account number. The routing number identifies your credit union. The account number identifies your own account within the credit union. Another reason to take this “route” with your tax return has to do with time-frame—-just like your paychecks. It takes 6 weeks or more to receive your “traditional” refund check. Using the direct deposit option the IRS provides can shorten that wait considerably. Some filers report receipt of their “electronic refunds” direct deposited in only 3 weeks. It’s your money. Wouldn’t you like access to it as soon as possible?

Now let’s talk about some other advantages of direct deposit. Have you ever heard, “pay yourself first?” Well, with direct deposit, you can designate several places to “send” your money on payday. And if you don’t have physical possession of that money, you are far less likely to spend it, frankly. If it’s in a savings account, or even paying off a debt, you may be less tempted to spend it on other distractions. What kind of debts can you address this way? Well, you can assign part of your direct deposited check to pay your car loan, your mortgage, or even your child support commitment each month.

Would it surprise you to know that more than 96% of credit union members have access to direct deposit? Well, it shouldn’t. Your credit union is there to serve YOU. You need only to stop into your credit union branch to set up direct deposit. It’s one more excellent service offered by your credit union.

Are Credit Unions Right for You?

You want to keep your money in a secure place, but stuffing rolls of bills in your mattress isn’t really your style? You might be thinking that a major banking institution is the only place to turn, but there’s another solution that could be (in some cases, literally) right around the corner. Credit unions are locally owned financial organizations that offer many of the same services that banks do, oftentimes with fewer fees and less stringent prerequisites for opening accounts.

Should you choose to put your money in a credit union? The answer to that question depends largely on what you are looking to get out of your financial institution. Naturally, different credit unions have different perks (such as free checking accounts) that might make them a more palatable option for some customers, but may not be as important a consideration to others. To help you decide, here are 3 reasons why a credit union might be the right choice for you:

1. If you want a say in how your financial institution is run

Supporters of credit unions are usually proud to point out that their organization is run in a more democratic fashion than most major banks. They are member-owned, meaning that when you join, you become a shareholder. Practically speaking, this usually means that most of the profit the organization makes is used to offer higher interest rates and lower fees to its members. However, it’s important to remember that a not-for-profit organization is not the same as a non-profit organization.

2. If you do most of your banking close to home

Credit unions are local institutions, and usually tailor their services to support the development of the community they serve. As a general rule, they lack the kind of national coverage that major banks have. This might not seem like a big deal, but if you’re travelling in a state far from home, you are unlikely to find an ATM from your local organization. However, some small organizations are part of shared branching cooperatives, where members of one credit union can utilize the services of any other organization in the network at no additional cost.

3. If your banking needs are (relatively) simple

If you are shopping around for a place to open a checking or savings account, a certificate of deposit, or for a personal or business loan, it makes sense to include the local credit unions in your search. If you are looking to create a high-powered stock portfolio, you are probably better off sticking with the major banks, who will likely have a team of seasoned investment specialists to guide you.

For some customers, a credit union offers the perfect mix of accessibility and service that they need. Your local phone listings or a quick online search should be able to provide you with the names and contact information for institutions convenient to your area. If you want, you can also ask a friend or a family member for suggestions and advice. Somebody you know should be able to point you in the right direction.