Understanding Credit Unions and Their Benefits

Credit unions are not-for-profit cooperatives that offer a community-focused alternative to commercial banks. They provide their members with a range of financial products and services, typically at lower fees and with better interest rates to borrow money.

Unlike commercial banks, which aim to generate profits for shareholders, credit unions prioritize the financial well-being of their members and neighborhoods. This often results in lower interest rates on loans, higher savings account rates and reduced service fees.

Understanding credit unions' benefits can help you decide on the most suitable financial products and services, such as personal loans and credit cards.

Credit unions were first established in America in 1901, with an initial deposit of just 10 cents. They were created to provide affordable financial services to their members, emphasizing cooperative principles and community support.

Credit unions are member-owned financial cooperatives that exist to serve their members rather than to maximize profits. They typically offer more attractive terms than banks, such as lower fees and better interest rates. Most of the profits that credit unions generate are reinvested back into the institution or distributed to members.

Generally, you’ll have to meet certain requirements to join a credit union, such as working for a particular employer, having a family member who already belongs to the union, living in a specific geographic location or belonging to a particular place of worship, school, labor union or homeowners' association.

Since credit unions are member-owned institutions, each member has a say in governance, usually exercised through voting rights. Members vote and elect a volunteer board of directors to serve the credit union. Members also assist one another by ensuring their mutual financial health. For example, if a member needs a loan, another member’s savings become the funds for a home or auto loan.

Profits are returned to members through lower fees, better interest rates and dividends. The National Credit Union Administration (NCUA) oversees a unique insurance fund for credit unions, ensuring deposits up to $250,000.

There are various types of credit unions tailored to different demographics and member needs. For example, credit unions for college students will have different requirements — and benefits — compared to military or federal credit unions. Below, we highlight some common types of credit unions and the populations they serve:

• Federal Credit Unions: Serve members across the United States.
• College Credit Unions: Serve students, faculty and alumni of specific educational institutions.
• State-Chartered Credit Unions: Serve specific local or regional communities and are regulated by state authorities.
• Employer Credit Unions: Serve employees of particular companies or organizations.
• Military Credit Unions: Serve military personnel, veterans and their families. Such credit unions are well-versed in federal programs like VA loans, so there tend to be faster processing times.
• Community Credit Unions: Serve residents of specific geographic areas.

Consider if there may be a type of credit union that fits your specific profile, depending on your circumstances and needs.

Credit unions offer their members a wide range of financial products and services. These services can extend to individuals, joint accounts or businesses.

Credit unions offer auto loans for new and used vehicles. These loans typically come with competitive interest rates and flexible repayment terms. As of the first quarter of 2024, the average rate for a new car loan from a credit union was 6.4%, and for a used car loan, it was 6.46%, according to the NCUA.

Benefits of credit union auto loans include lower interest rates compared to traditional banks, personalized customer service and more flexible approval criteria.

Credit unions offer credit cards in partnership with major companies like Mastercard and Visa. These cards often come with competitive interest rates and member-focused benefits. As of the first quarter of 2024, the average interest rate for a credit card from credit unions was 12.86%, compared to the average rate of 24.37% for traditional cards.

Credit unions provide debt consolidation loans, which can help members manage multiple debts by combining them into a single loan with one monthly payment. These loans may offer more favorable terms compared to other lenders, including lower interest rates and more flexible repayment options.

Note that federal credit unions have an interest rate ceiling of 18% for loans, which can make these loans a more affordable option for debt consolidation.

Credit unions allow members to make deposits, often with no monthly fees or minimum balance requirements. However, some transactions may incur fees, so reviewing the terms is important.

Credit unions offer a variety of mortgage options to meet their members' diverse needs. These can include conventional mortgages, government-backed loans and special programs for first-time homebuyers.

Some credit unions even offer unique mortgage products, such as mortgages that allow you to buy a home without making a down payment. Other institutions offer down payment assistance grants to help make homeownership a reality for those with less savings.

Credit unions also offer personal loans, which you can use for a variety of purposes, from consolidating debt to financing a large purchase. These loans typically come with competitive interest rates and flexible repayment terms.

Credit unions offer a wide range of loan amounts. Personal loans can range from as little as $500 to as much as $100,000. For example, Alliant Credit Union offers personal loans up to $100,000, providing substantial flexibility for borrowers.

Before joining a credit union, you should understand its benefits and drawbacks — especially compared to commercial banks that may offer similar services.

When looking for a credit union to join, consider these tips to find the best fit for your financial needs. Unlike banks — which accept virtually all types of customers — not everyone can join a credit union.

Remember that users need to apply and then be accepted to join. Some credit unions are only for military members and their family members, for instance, so if you or a loved one didn’t serve, you cannot join.

MoneyGeek compiled answers to frequently asked questions about how credit unions work so you can make informed financial decisions.

Many resources are available to help you gain a deeper understanding of credit unions. Below are a few places to consult.

• College Finance: This website will give you a rundown of the best banks and credit unions for college students and includes pertinent information like fees and account access details.
• Credit Union Times: Credit Union Times offers whitepapers, case studies and industry analyses from industry leaders on topics ranging from digital engagement to valuable credit union loans.
• The Military Wallet: The Military Wallet compares different military banks and credit unions to highlight the offers and determine the best options.
• Alliant Credit Union: Alliant allows you to compare rates to other credit unions and banks for both fixed or adjustable rate mortgages.
• Credit Union Locator: Use the MyCreditUnion.gov tool to find a credit union in your area and determine which ones offer member services, drive-thrus and ATMs, among other services.
• Credit Union National Association: CUNA is the only national association that advocates for the entire credit union movement. You can find events, training, products, news and more.
• National Credit Union Administration: The NACU can help find a specific credit card union and learn more about rules, regulations and resources about credit unions and best practices.