Expanded Lesson 13 min read
Dec 19, 2023
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Credit unions are member-owned financial cooperatives that offer banking services to their members. Credit unions are not-for-profit institutions owned by members, unlike banks, which are for-profit organizations designed to benefit shareholders. Credit Unions primarily exist to serve their members, who are also their owners.
Credit unions offer several benefits. Starting with the structure,credit unionsare democratic. Each member has an equal vote regardless of how much money they have in the credit union. Therefore, the union's policies reflect the interests of the membership. Members typically join based on a common bond, such as working for the same employer, living in the same geographic area, or being part of the same church or social group.
Credit unions provide financial services like banks, including loans, savings and checking accounts, credit cards, andonline banking. However, due to their member-oriented objectives, they have several service advantages compared to banks. These credit union advantages include higher savings rates, lower fees, and a more personalized customer service experience. Credit unions stand out in prioritizing member needs. Here's a comprehensive look at how they set themselves apart in the financial sector.
Lesson Content
Personalized customer service
Credit unions have a personalized approach to customer service. With a typically smaller client base than banks, credit union staff can offer a level of attention that is often more detailed and intimate. Employees tend to know their members by name and are familiar with their financial goals and invested in their success, which allows them to offer tailored advice and services.
Usually, credit unions focus on building long-term relationships with members. This means they are more likely to offer membersfinancial hardship assistance, including advice and solutions tailored to individual needs. Overall, they provide a level of empathy and understanding that can be lacking in larger banking institutions.
Lower fees
As not-for-profit organizations, credit unions aren't looking to nickel and dime members to maximize profits. As a result, their fee structure is typically more favorable than banks'. For instance, member benefits at Ent include lower fees for account maintenance, lower penalties for overdrafts and fewer miscellaneous fees.
Banking fees can add up over time. Credit unions save members significant amounts of money by charging fewer and lower fees. Such savings are particularly beneficial for individuals managing tighter budgets or those looking to maximize their savings and investments.
Lower interest rates on loans
Because credit unions are more focused on serving their members than making a profit, they offer loans with more flexible qualifying criteria. Credit unions typically extend loans at lower interest rates compared to banks. When financing, affordability is crucial for large loans such as mortgages or auto loans . A minor difference of a fraction of a percentage point can lead to thousands of dollars saved over the life of the loan. That's why lower interest rates are one of the credit union advantages for members with less-than-perfect credit histories.
Community focus
Credit unions are embedded in their communities and contribute to local development. They provide financial education, sponsor local events and reinvest in community projects. Often, they support the local economy in ways that go beyond banking.
Member-owned and voting rights
One of the most significant credit union benefits is membership and voting rights. As a member of a credit union, you are an owner with an equal stake in the institution. This collective ownership means members often have a say in critical decisions. Thus, credit union operations closely align with members' needs and desires. Every member has a vote in important decisions, such as the election of the board of directors.
Variety of products
Despite their local focus and smaller size, credit unions offer a comprehensive array of financial products, often mirroring those larger banks provide. These include various accounts, loans and investments, and insurance products for their members.
Additionally, today's credit unions integrate technology into their financial services. For instance, they offer members online banking services, mobile banking apps, and payment options. Credit card options at Ent is one example that highlights financial innovation. Essentially, they combine the personal touch of a small institution with the technological capabilities of larger banks.
Insured deposits
Credit union deposits are insured by the National Credit Union Administration (NCUA) —the Federal Deposit Insurance Corporation (FDIC) equivalent for banks. Both insurance entities protect individual member deposits up to $250,000. If you bank with a credit union, your hard-earned money is insured from loss the same way it would be at a bank.
Summary
Credit unions operate to benefit their members rather than for profit, which translates into better rates, lower fees and a community-driven focus that enriches the members' experience. Each member has a voice. Moreover, with products designed to meet their needs, credit unions stand out as institutions that put people before profits.Becoming an Ent membermeans you can grow your savings, obtain affordable credit and get a more personalized banking experience.
FAQs
What makes credit unions different from traditional banks?
Credit unions differ from traditional banks because they’re member-owned entities aiming to serve their customers' interests rather than maximizing profits. They are unique in the following ways:
- Ownership:Credit unions are member-owned institutions, meaning the members who bank with a credit union are its owners. Banks are owned by shareholders who may not necessarily be bank customers.
- Profit orientation: Banks are for-profit entities focused on returning profits to their shareholders. In contrast, credit unions are not-for-profit and exist to serve their members. Profits are returned to members through better rates and improved services.
- Decision-making: In a credit union, each member has an equal vote and participates in processes such as electing the board of directors. In contrast, a bank’s decisions are made by board members elected by shareholders. Typically, the more shares owned, the more voting power.
- Community focus: Often, credit unions have a strong community focus. Typically, they have a mission to serve and reinvest in the local area. On the other hand, banks serve larger regions or have a national presence, sometimes prioritizing larger market areas.
- Eligibility: To become a member of a credit union, you must meet the credit union’s field of membership requirements. This usually includes a specific community, employer, region, or group.
Why should someone consider joining a credit union?
When you join a credit union, you enjoy the following:
- Financial savings: Members benefit from lower fees and better rates on savings accounts and loans. These savings lead to significant financial savings over time.
- Personalized service: Credit unions deliver a customized banking experience through their customer-centric approach.
- Democratic structure: As a member, you have a say in the credit union's operations. Credit unions give a sense of ownership and influence not typically found in banking.
- Community impact: You contribute to and benefit from your local community's financial health and development.
How do credit unions offer competitive financial products?
Credit unions leverage their not-for-profit structure to offer competitive financial products. Due to their not-for-profit status, credit unions aren’t required to pay dividends to shareholders. They pass savings on to members through better product offerings.
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