Credit Unions vs. Banks: Key Differences Explained

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How Do Credit Unions Work?

A credit union is a not-for-profit, member-owned cooperative financial institution that offers a range of financial products, such as loans and checking and savings accounts. Credit unions require membership, often based on a common association among their members—that they all work for the same employer, live in the same area, or attend a certain school. Members elect a board of directors, which volunteers to manage the credit union.

Credit unions prioritize serving their members through community engagement, member education, and generous terms on banking products, including checking and savings accounts, credit cards, mortgages, wire transfers, personal loans, and more.

What Is the Difference Between a Credit Union and a Bank?

Credit unions differ from banks in several key ways:

• Membership: Credit unions require membership to join. You may qualify through your employer, religious institution, labor union, school, or where you live. Some credit unions don’t restrict their membership at all.
• Profit Distribution: Credit unions return profits to members via lower interest rates on loans, reduced fees, and higher savings account interest rates. Banks, being for-profit institutions, distribute earnings to shareholders.
• Governance: Members elect representatives to each credit union’s board of directors, giving them a say in how the credit union is governed.
• Branch Availability: Credit unions may have fewer physical branches, but many participate in networks offering fee-free ATMs and shared branches, along with online and mobile banking services.
• Terminology: At credit unions, deposits are called “shares,” and interest earned is referred to as “dividends.”

How to Join a Credit Union

To join a credit union, search for one in your area using the National Credit Union Administration’s locator tool. You can also ask your employer, school, or any groups you belong to if there is an affiliated credit union. Once you’ve chosen a credit union, confirm your eligibility and open an account with a small deposit. You may also pay a one-time membership fee of $5 to $25. Accounts can typically be opened either online or in person.

Advantages of a Credit Union

The biggest advantage of a credit union is the potential for higher savings rates and lower borrowing rates compared to traditional banks. Here are some benefits:

• Higher Savings Rates: Credit unions often offer higher interest rates on savings accounts and certificates of deposit (CDs).
• Lower Loan Rates: Credit unions may offer lower rates on credit cards, personal loans, car loans, and home equity loans.
• Borrowing Flexibility: Credit unions may be more willing to lend to members with poor credit, offering special programs due to their not-for-profit status and community-focused mission.

Disadvantages of a Credit Union

While credit unions offer many benefits, there are some drawbacks:

• Fewer Product Options: Some credit unions may not offer as wide a variety of financial products and services as big banks.
• Technology Limitations: A credit union’s app or website may not be as feature-rich and user-friendly as those offered by major banks.
• Limited Physical Branches: Credit unions may have fewer physical branches, but many participate in shared-branch networks for in-person banking at other credit unions when traveling.

Do Credit Unions Report to the Credit Bureaus?

Credit unions typically report debt-related activities to the credit bureaus, including applications for new lines of credit and all loan or credit card payments made. To maintain a good credit score, pay all your bills on time and keep your balances low.

Contact O1ne Mortgage for Your Mortgage Needs

If you’re considering a mortgage or any other financial service, O1ne Mortgage is here to help. Call us at 213-732-3074 for personalized assistance and expert advice. We are committed to providing you with the best rates and exceptional service.

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