Why Credit Unions Are Growing in Popularity and How They’re Different from Banks
Credit union membership has been on the rise, with more than 49,000 credit unions operating in 97 countries. In the U.S. there are about 6,500 federally insured credit unions serving 100 million members.
Much of this appeal comes from credit union members being part owners of their financial institutions. And credit unions are governed by a board of owners—not stockholders—so profits go back to the members through higher savings dividends and lower loan rates. As consumers become aware of the benefits, many are gravitating toward the more personalized experience offered by credit unions.
Serving People, Not Profit
The not-for-profit credit union approach to providing financial services is based on a philosophy of “People Helping People.”
The concept dates back to Germany in the mid-1800s when townspeople pooled their savings to provide loans to farmers hurt by a poor growing season. This cooperative approach helped farmers avoid paying high rates being charged by less scrupulous lenders. Today, credit unions continue to offer low-cost financial services that rival those of banks.
The Consumer Advantage
The Consumer Federation of America (CFA) recommends that consumers check into credit unions for good loans and savings rates, noting that compared to credit unions, banks pay lower rates on savings accounts and CDs, but charge higher rates for consumer loans.
“The reason credit unions offer better rates is that they are non-profit, member-owned, cooperative institutions that work for the benefit of their members,” says CFA Executive Director Steve Brobeck. “Credit unions don’t have to pay dividends to stockholders or directors, and operating expenses are considerably lower than the operating expenses of banks.”
In addition to basic share accounts and personal loans, many credit unions offer share draft services (checking), credit cards, ATM and debit cards, IRAs, account insurance, savings club accounts, student loans, mortgages, auto loans and financial planning services.
While some banks may have more brick and mortar locations, credit unions have formed an extensive network so members can conduct transactions at more than 5000 branches and 2000 self-service kiosks nationwide. And with today’s technology, members can make transactions with their mobile devices from just about anywhere.
Credit Unions: Safe and Sound
Like savings accounts at banks, savings at credit unions are federally insured to at least $250,000 and backed by the full faith and credit of the federal government. Credit union share accounts are insured by the National Credit Union Share Insurance Fund, administered by the National Credit Union Administration, a federal agency. This fund, separate from but similar to the FDIC, is supported by credit unions, not tax payer dollars. The fund has never had a negative balance and remains extremely healthy with the legal limit being held in reserves.
Credit unions continue to be safe financial service providers that offer consumers alternatives to for-profit financial institutions. Unlike banks, credit unions are limited in their investments to instruments that are issued or guaranteed by the federal government. And for many low-income people who can’t afford the fees and high minimum balances required at some banks, credit unions are the only source for affordable loans and a good return on savings.
Where Everybody Knows Your Name
Typically, credit unions serve a specific employee group; members of a trade, industry or profession; or those living, working, worshiping or attending school in a specific community. And credit unions rank high in satisfaction because of their deep community connections and long-term relationships. It’s not unusual for them to serve multiple generations of the same family as members navigate first cars, college, homes and eventually retirement.
And while there’s no doubt that the list of financial services is impressive, when you get right down to it, it’s refreshing to walk into a financial institution these days where everyone knows your name!
Resource: PA Credit Union Association.
David LaSala is President and CEO of Benchmark Federal Credit Union, headquartered in West Chester, with branches in Great Valley and Collegeville. Celebrating its 75th year of service, Benchmark FCU serves Chester County with the goal of supporting and improving the economic wellbeing of its members throughout their lives. 610-429-1600; BenchmarkFCU.org.