Wednesday, July 12, 2017

The Credit Union Difference

This is a topic I've been sitting on for a while.  While some personal finance articles are about products or services that you should consider, others are about strategies that you ought to be taking.  This one is a little more philosophical by nature. Today, I want to talk with you about where you are putting your money.  I am not referring to which investment is better than another. I am thinking much more basic than that.

In the personal finance world, we all love to talk about our investments, insurance, and passive income.  However, the real foundation of our financial lives lies in the most basic accounts that we use on a daily basis.  Where are you keeping your money?

According to a recent Washington Post article over 100 million Americans are now using credit unions for their checking and savings accounts.  Are you one of those Americans?  If not, you might be on the wrong side of things.

How does it work?

In extremely simple terms, a bank's goal is to make money from consumer accounts.  Once that money is made, it is able to pay out dividends to it's stockholders.  This might be great for you if you happen to be the stockholder, as the interest and fees paid by customers are lining your pocket.  If you happen to be the account holder, then you are on the absolute wrong side of the deal.  You are paying interest and fees in order to line someone else's pocket.

A credit union works differently.  While the accounts are the same (checking, savings, credit cards, etc.), the philosophical concept is very different.  When you open an account at a credit union, you are required to open a basic savings account, typically called a "shares" account.  In this basic savings, the credit union will require that you deposit a minimum amount (typically somewhere between $5 and $25) into that account.  That minimum amount is basically frozen until you close the account.  That dollar amount has bought you one share ownership of the credit union.  Yes, you read that right.  You will be a partial owner of the credit union.  When you close the account that small portion that was previously frozen, is given back to you, and you give up your one owner's share.

What does that one share buy you?  It buys you one vote at the annual meeting.  All members of the credit union are member-owners, and invited to attend the annual meeting where decisions are made regarding the credit union's board of directors, etc.  Has your bank ever asked you to help make decisions about how it was being run?  I thought not.

Speaking of the board of directors.  In a credit union, this is composed 100% of volunteers.  These volunteers are member-owners just like you, and they are not paid.  At some point, you might even serve on this board and be even further involved in helping make decisions for the credit union.  Again, is your bank going to ask you to serve on their board of directors?

Even if you never serve in his capacity, you still get to vote, and that's very important.

What about interest rates and fees?

Credit Unions still have fees just like banks do.  The difference is what they do with them. Remember, a bank's goal is to make it's stockholders happy.  In some respect, the stockholder is a little like the bank's boss.  A credit union's boss is you, it's member-owner.  In other words, the person that has the account.  So, when they make money, they sink it into better services, better rates, better fees,etc.  Remember, the people that have the accounts, also run the board of directors, and vote at the annual meeting.  Yes, there are still fees, but you are partly helping to decide what happens with that money, and you are directly benefiting from it.  That's not how it works in a bank.

Is my money safe?

YES.  Credit Unions are Federally Insured by the NCUA.  This is similar to the FDIC.  The FDIC is for banks.  The NCUA is for credit unions.  The insurance limits and levels are exactly the same, so you don't need to worry that your money is somehow in danger.  For further information on NCUA insurance levels, click here.

What are the possible drawbacks?

I spent almost ten years of my life working in the credit union world and I've hear it all.  One of the most common things that you might hear people complain about when it comes to credit unions is the number of branches.  You may hear "My credit union only has three branches."  This is different from the banking world where there are branches on every corner.  The credit union world has become very savvy in attending to this issue.  The credit unions have come up with a system called "Shared Branching."  Credit Unions all across the country have joined this network.  If your credit union is on this network, they also have branches that offer shared branching services to others.  What does this mean for you?  As long as you have your account number and ID, you can simply walk into ABC credit union at a branch that offers shared branching services, and they will access your account at XYZ credit union for you.  For more information on Shared Branching click here.

In short, I spent nearly a decade of my life working in the credit union world.  Although I am no longer employed by a credit union, I am still a huge advocate and believer that credit unions are the way to go.  In fact, my credit union is in Oregon.  I live in New York, and I have all the access that I need.  I use mobile deposit, online banking, direct deposit, and shared branching.  My access is phenomenal; the service I receive from my credit union is amazing.  I feel like a member of the family, not just a number.  That to me is the credit union difference.

Do you belong to a credit union?  If so, what do you like about it?  If not, why might you hesitate to join one?

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