Everything You Need to Know About Credit Unions Before Applying

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Credit unions cannot catch a break, can they? The media certainly doesn’t know whether to portray them in a good or bad light and with such a mixture of good and bad stories from people who had dealt with them before, it’s difficult to know whether joining a credit union is worth it.

But what is a credit union, anyway? Should you go about your business and ignore them or do you have legitimate reasons to do further research? Even just answering that question seems to give a lot of people headaches.

What you should know from the very start is that credit unions are nonprofit financial organizations. Their members, who are considered part-owners, gain a safe space to deposit funds as well as the opportunity to open checking and saving accounts. Perhaps one of the greatest benefits of credit unions is the ability to get a loan, or several!

Since they are, as mentioned earlier, nonprofit organizations, funding comes from members pooling money which can then later be accessed.

If you’ve just thought ‘hey, that sounds like a bank!’ then we’re not surprised. A lot of people think of credit unions and banks as indistinguishable, so let’s start by looking at the differences between the two.

What Are the Differences Between Credit Unions and Banks?

Overall, the differences between a bank and a credit union lie in the vastly different set of experiences you’ll gain from either. Both institutions offer the same financial products, which you could consider the ‘end result’.

Naturally, the ‘path’ to your desired ‘end result’ will vary between the two. Here are four key elements that will help you differentiate between the two.

1. Organizational Structure

Banks are typically run by shareholders who’re more interested in turning a profit than aiding the members of their community. That’s also why you’ll see generally higher rates in banks as opposed to credit unions.

The latter are instead run by a volunteer board of directors that get voted in by members of the union. As such, they’ll be focused on the wellbeing and financial stability of their members as the goal is to share profits. In addition to being tax-exempt, they offer members reduced rates and perks, such as free checking accounts.

2. Scale of Operations

You hardly ever have to worry about traveling if you rely on banks for your finances. On top of there being branches and ATMs at every corner, you’re also likely to find them peppered in various countries around the globe. Suffice it to say you never have to worry about being separated from your finances.

Because their scale of operations is much smaller, you won’t find the same benefits with credit unions. However, that doesn’t mean you’ll feel like a fish out of water when you travel.

Thanks to a cooperative network between unions you can access your funds as well as deposit checks anywhere in the U.S. Just because your union covers a small, single area, does not mean your finances will be unreachable when you move beyond the threshold.

3. Rates

If you’ve always wanted to avoid high fees then it might be time to switch to a credit union. Since they are member-driven, it makes sense for them to be wallet-friendly as well, so you can get away with saving money by avoiding high fees, whereas with a bank you wouldn’t be afforded that opportunity.

Thet’s because, as mentioned earlier, banks are run by shareholders who want to see their profits rise. No matter how wholesome and inspiring most of their adverts are, you need to remember that banks are still businesses and though they might aim for a family-friendly look, their shareholders will always gun for higher interest rates and fees.

4. Membership Requirements

While opening an account in a bank typically requires just having your ID on hand, joining a credit union involves jumping through a few more hoops. It’s true that as of late, their membership requirements have relaxed, but they still have a long way to go.

In most cases, an individual must have a common bond with the organization. Those who work for certain companies or employers or are in some way affiliated with professional associations will have an easier time joining. Having a relationship with a current member will also help open doors for you.

So the next time someone brings up their credit union, maybe take some time to have a conversation about their experiences. You never know, they might help you become a member.

Advantages of Credit Unions

Now that you know the differences between banks and credit unions it’s time to look at the advantages of joining one. If you’re part of the right network of people then you might be wondering if it’s worth it to join. If not, these key features might help spring you into action when it comes to getting your foot in the door!

Better Rates

Whether you want to start saving aggressively or you’re just preoccupied about where your money goes and why, having better rates and lower fees is a clear advantage that few other institutions can offer.

Even those members of the community who are currently in tough financial situations can benefit from credit unions. Your financial history might not instantly qualify you as an at-risk candidate, so you (typically) don’t have to worry about getting higher fees than everyone else around you.

Customer Service

Who here hasn’t experienced long waiting times in a branch or on the phone with a bank? Since millions of users depend on them daily, it’s no wonder that customer service is running a bit thin.

On the complete opposite end of the spectrum, a credit union’s customer service will be superb. On top of there being fewer members to clog up the system since the organization relies on its members’ continuous support, it’s no wonder that their customer service associates will do everything in their power to gain your trust and to make you happy.

On top of answering your questions, customer service members are also trained in offering you budgeting tools and other guides, proving that your financial success is their number one priority.

Community Involvement

Credit unions don’t just support their members with the right financial products for their needs, but they also get involved in their communities.

From organizing financial literacy programs to leading charitable events, credit unions have been known to positively impact their communities. Furthermore, they help other organizations and partners develop their own helpful programs so that even more useful information can spread around those who need it most.

Ability To Participate

As a member, you earn the right to vote for the board of directors that runs your organization. That democratic premise extends to other benefits, too. For example, credit unions may solicit members’ feedback for possible improvements or changes.

One of the most incentivizing advantages of credit unions is their democratic election of the board of directors. These are typically volunteers that aren’t looking for ways of lining their pockets and are instead focused on the well being of their communities.

Members get to vote on who they’d like to represent them, but that’s not all. Credit Unions also work with feedback in regards to their operations and often look for ideas from their members. They are therefore much more community driven than traditional banks.

Disadvantages of Credit Unions

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But of course, you can’t overlook some of their disadvantages. When deciding whether or not you should forgo your traditional bank in favor of a credit union, it’s important to weigh your options carefully.

Some of these disadvantages might not fit with your needs and lifestyle, so even though you might feel the attraction, it’s best to second guess if joining one if the right move for you.


Though you might be able to access your funds through a credit union network when you travel, you shouldn’t totally ignore the possibility of getting stuck in an area with no means of checking your accounts.

Things get even trickier when you travel abroad in which case you’ll probably have to carry a lot of cash around. Of course, many people advise against doing so, as you could bump into the worst types of people even in the friendliest of places.

Think twice if this might be a hindrance to your vacation plans.


Big banks like to stay ahead of trends with plenty of user-friendly techs. Now, credit unions might aim for the same level of improvement, but their smaller stature usually prevents them from developing or funding quick and easy to use apps and websites.

If you’re okay with lagging behind in the technology department, then you should be fine. But remember, once you get a taste of what it means to use the latest improvements, going without might feel like reverting back to the stone age!

Membership Concerns

No matter how much you want to join a credit union, if none in your area have lenient membership criteria, it might be impossible.

As outlined earlier, you must have some connection to a person or an organization in order to join their ranks, and that’s often on top of paying a $5 to $25 fee. Your best bet is to either network, learn a new skill in order to gain the attention of an organization, or wait until their membership criteria loosen up a little bit.

Services and Options

In a typical bank, you might be able to find whatever financial services you need. Their scale helps offer an array of accounts and loans for even the pickiest of customers.

Credit unions, however, do not have the luxury of offering an extensive list of services. For example, don’t hold your breath about accessing a commercial mortgage loan. This disadvantage might be offset by better rates, but better rates won’t help you if you literally can’t access the type of service you want!

It’s best to do your research on what a credit union near you can and cannot offer. That should be your first step- certainly before paying for any membership fees. If you do and then end up finding out that it was all for naught, you probably won’t see your money back.

What Are the Different Types of Credit Unions?

You might be surprised by just how many credit unions are in your area. Some groups cater to teachers, police officers, military families, government employees, and many more.

They typically fall into one of two categories, state charted unions or federally charted unions, as they can have either a regional or national presence.

Federally Chartered Credit Unions

Federally charter unions usually have an added layer of protection so that members may never feel like their funds might be in trouble.

Each account is insured with $250,000 through the National Credit Union Share Insurance (NCUSIF). How can you tell if a credit union falls under this category? It’s easy. The first ‘hint’ is whether or not they have the word ‘federal’ in their name. Secondly, you should look for the National Credit Union Association (NCUA) on their website.

If you’ve found it when you’ve bumped into a credit union that is backed by the U.S. government.

State-Chartered Credit Unions

While some unions may be backed by the U.S. government, state-charted unions use private insurance companies to protect their members’ deposits.

Of course, your funds will still be safe, so this is not necessarily an indicator that you should think twice about joining such a union, but you could definitely use this fact as the deciding factor between more options.

Do Credit Unions Use ChexSystems?

The ChexSystems help banks determine your financial situation by looking at your saving and spending habits, which more often than not also include NSF checks, unpaid fees, fraudulent activities, and overdrafts. The 80% of banks who rely on this system can then make application approval or denial decisions based on your history.

There may be credit unions that subscribe to the ChexSytems as well, but you’re less likely to find one that isn’t. Furthermore, unlike many banks, they often give ‘undesirable’ members a second financial chance with their checking accounts.

So if your financial history isn’t all that great you can at least expect to be able to work towards improving it with a credit union near you. Sometimes you might find that you’ll start off with steeper fees, but these taper down as time goes on, so you won’t be stuck with them forever. After a certain time period, your account will be indistinguishable from another member’s.

How Do You Join a Credit Union?

Locating a credit union that’s just the right fit for you is a walk in the park. All you have to do is use the NCUA’s Credit Union Locator, but what exactly should you be paying attention to?

Since credit unions are community and member-drive it’s best to find one that is affiliated to your profession in some way. That way you’ll ensure you’ll join a group of like minded peers that have similar goals in mind.

For example, if you’re a teacher, you might not fit into a credit union that revolves around military families. Keep in mind that you can shape your community and the way your union operates by taking a more active role within its ranks.

After you’ve researched the unions around you it’s time to pick one. Join by paying the $5 to $25 membership fee and then make an appointment with a financial advisor.

During your appointment you should discuss your goals and needs so that your advisor could help set up accounts that reflect them!

Is Joining a Credit Union Right for You?

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As with any financial decisions, you shouldn’t think lightly about joining a credit union. Weighing the pros and cons is the most important step in the process and only you can tell whether joining one is the right move for you.

If, for example, you’re attracted by the member-driven opportunities but you travel often, then you have to decide which of these factors weight more in your decision-making process.

Ask yourself this. Which type of organization can help reach your goals sooner? By using this as a starting point, you’ll be closer to making the right call for yourself and your household.

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