There are many reasons to consider an alternative to a traditional bank, whether you are looking for a different customer service experience or just figuring out what works best for your financial situation.
A new financial institution could potentially offer better service, rates, lower fees, or more convenience. For instance, credit unions are considered a popular alternative to big banks because they offer a more personalized experience to their members. Before switching banks, you might want to consider if a credit union might be the right home for your banking needs.
What Is a Credit Union?
One difference between a credit union and a bank is that credit unions are run as co-ops, meaning each member has a stake in the business. Just like buying stock in a company, you own a small piece of the credit union when you join.
These organizations are typically smaller than big banks and specific to certain locations, while offering similar services.
As nonprofits, credit unions are usually designed to serve their members, generally paying higher overall interest rates on deposits and with lower fees and penalties.
And while you may be earning interest on your savings account at a bank, they may be earning even more from that money.
Credit unions are financial institutions like banks, and they offer products you’d expect such as checking and savings accounts, loans, debit cards, online account access, bill paying, checks, money orders, and more. Credit unions generally charge fewer fees , often with no minimum or a very low minimum deposit to open an account.
According to the National Credit Union Association , as of September 2019, the average interest rate on credit cards from credit unions was 11.78%, while the national average for banks was 13.51%. The same trend generally holds for home equity loans and new car loans — credit unions overall offer lower rates.
Typically, credit unions serve people only within their geographic area, and you need to be a member. Some credit unions have specific requirements for membership, but most make it easy to meet the qualifications, such as:
• Where you work, or your industry
• The area where you live
• Where you attend school or worship
• Membership in another organization
• A family member’s eligibility
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Traditional Bank Benefits
If you currently bank with a large financial institution with a well-known name, you might be hesitant to switch your accounts to a smaller, seemingly less popular credit union.
Really, the biggest overall benefit of choosing a traditional bank might be that they generally offer a larger array of financial products and have more branches, both nationally and internationally. Another difference between credit unions and banks is that bigger banks can be quicker to adopt new technology, such as mobile check deposit.
But remember those better fees from credit unions? Some credit unions take into account members who are in the military service and will let you use any ATM without a fee from a cooperative network of other banks, including those overseas. In fact, the largest U.S. credit union is Navy Federal Credit Union, which has more than 8 million members .
Credit Union Tradeoffs
With their reputation for better customer service and higher savings rates, credit unions are a great banking choice for many people. With a network of ATMs and some of the bigger branches keeping up with the latest banking technology, there’s seemingly no downside to banking with a credit union instead of a big bank.
However, some people might find the lack of 24-hour access concerning, as many credit unions have local customer service and therefore aren’t always available with online chat functions or a helpline on the weekends.
People in rural areas might also be limited in their search for a credit union branch nearby. Even in big cities, you might have to travel to reach your specific credit union—there likely won’t be a branch on every corner.
Some people might worry about financial security at credit unions, but if anything, considering the big scandals of big banks recently, credit unions might feel to some like a more secure option for your savings. In order to alleviate concerns about the safety of your money, you may want to check to make sure the credit union is insured through NCAU.
Finding the Right Credit Union
If you think a credit union may be the right fit for you, but are unsure where to start, you could ask your co-workers or neighbors if they use one and if they like it. Since a credit union is a local financial institution, word-of-mouth can make for valuable research.
You could also search in your geographic area making sure to check the eligibility requirements, and nationally, if you’re able to use a different local branch as part of the network. Then, joining is just like opening up any other bank account. Additionally, a credit union account allows you to do most tasks online or over the phone.
The Takeaway
Traditional banks may charge ATM and overdraft fees—as do credit unions. And although both often provide overdraft protection by pulling from a savings account, there is also the risk that you’ll be charged a fee.
If you are looking to try a new financial institution, you could consider SoFi Checking and Savings®, which is an account that allows you to save, spend and earn – all in one place. It has no account fees and is mobile-friendly—you can even deposit checks through your phone. Plus, you’ll receive free access to 55,000+ ATMs worldwide and you can send money right from the app to anyone you need with our P2P transfers.
A note: we work hard to give you high interest and charge zero account fees. But it’s important for you to know that our interest rate and fee structure is subject to change at any time. Check out our terms and conditions to learn more about that.
SoFi Checking and Savings has member benefits that may also extend beyond the services offered at a credit union or traditional bank. By joining the SoFi community, you get access to complimentary career coaching, events with fellow members, and more.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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