Saving for Change

Decoding Credit Unions
by Michelle A. Cheek, CAAB Summer Intern 2006

Is a Credit Union Right for You?

Having a good relationship with a financial institution is necessary for everything from buying a house to saving for education. Competitive loan and interest rates, as well as service availability, are important factors to keep in mind when shopping for the right financial partner. But what many people don’t realize is that banks are not their only option. Credit unions provide an alternative outlet for a wide range of financial transactions.

So, what are the perks of being involved in credit unions, and is a credit union the right path for you? Here are a few facts to keep in mind as you shop around for the right financial institution.

How are credit unions different than banks?

Credit unions are actually very similar to banks; both provide checking and savings accounts and loans. The major difference is that banks are owned by shareholders and, therefore, are concerned about making a profit. On the other hand, credit unions owned by their members and are not-for-profit institutions.

Because credit unions aren’t focused on maximizing profit and because they do not have to pay taxes, members are likely to get better interest rates on their savings and lower interest rates on loans. However, because they are owned by individual members, credit unions typically offer many more consumer-oriented products and services and are limited in what they can offer business clients.

In addition, credit unions traditionally consider character and personal circumstances more thoroughly when determining interest rates on loans instead of simply basing decisions on a person’s credit score, as many large banks do. This means credit unions often give higher-risk clients better options.

Who can join a credit union?

While anyone in the general population can become a bank customer, credit union membership depends on various requirements, such as belonging to a certain community, workplace, or place of worship. However, several credit unions in Washington recently expanded their memberships to include any individual living in the city or a particular area of the city.

Once you become a member of a credit union, you can retain that membership even if you move or change jobs.

Will my money be safe in a credit union?

Yes, your money will be just as safe as it is in a bank. Like banks, credit unions insure deposits up to $100,000, and retirement accounts can be insured for up to $250,000. The major difference is that banks and credit unions are insured by two different organizations: banks by the Federal Deposit Insurance Corporation and credit unions by National Credit Union Administration. Despite this difference, both types of insurance are equally reliable.

Is a credit union right for me?

That’s something you have to decide for yourself. But if you prefer small institutions that emphasize personal attention and would appreciate having a more direct role in the decisions made by your financial institution, then a credit union may be a good choice.

To find a credit union in the Washington area, contact the Maryland and D.C. Credit Union Association at 1-800-492-4206 (toll free) or 410-290-6858, or visit www.mddccua.org.