Pros and Cons of Credit Unions

By Guest | Jan 12, 2012

This is a guest post by George Gallagher. Do you have an account with a credit union? How do you find the services? Would you like to share the customer service experience of the credit union v/s traditional bank with our readers as a guest article? You are most welcome. See the guidelines.

There are a lot of changes taking place in the banking industry today, and because of that, many people are taking a closer look at credit unions and the many advantages that they can offer. Credit unions can be a great alternative to traditional banks, while offering many of the same services to their members. There are, however, a few drawbacks – so before making the switch, be sure that you are aware of all the angles.

Pros of Credits Unions

Advantages and disadvantages of credit unions
Credit unions differ from banks in many ways – beginning with the way they are structured. For instance, credit unions are actually chartered either by the state they operate in or by the federal government. Rather than simply having customers or depositors, credit unions have members – and these members are essentially part owners of the credit union.

When you open your account at a credit union, you become a part owner. Because members are considered owners of the institution, these entities are known for having a higher level of customer service than banks.

In addition, credit unions are not-for-profit organizations. One of the biggest benefits to this structure is that they receive nice tax breaks from the federal government. Due to these lower costs, the savings are often passed down to the credit union’s members. This also accounts for the better interest rates – both on deposits and on loans – that credit unions offer. Credit unions also tend to have fewer restrictions on services such as qualifying for loans.

If you are concerned about the safety of your deposits, the good news is that credit unions are insured. These entities are backed by the federal government and just as banks are insured with the FDIC, your deposits are insured with a credit union – up to $250,000 per account – with the National Credit Union Administration.

A Few Drawbacks

Even with the many positive attributes, there are a few drawbacks to placing your financial business with a credit union – one of those being that credit unions typically do not offer as many options as banks do with regard to lending. This is because, rather than offering a number of creative financing techniques, credit unions tend to stick with the basics. Therefore, if you are in need of subprime financing or another similar situation, a credit union may not be your best bet.

In addition, even though credit unions are non-profit organizations, they still require operating costs and overhead. Therefore, members are not immune to paying fees for certain services. So, although the fees you are subject to at a credit union are still likely lower than those charged by banks, don’t be surprised if you see at least some service charges.

Also, because credit unions tend to operate on a smaller scale than many of the nation’s large banks, those in need of larger commercial loans or other types of business banking services may not find what they are looking for at a credit union.

How to Decide?

In making the determination about whether to move your business to a credit union, there are a few things to consider. First, will you need large business lending services or are you more in need of smaller loans for just your home and auto? Also, will you require more personal attention and service? And, are you apt to open large business accounts or will you be more of a personal savings and checking account customer? Once you have answered these questions, you will have a better idea on which way to go.

Byline: George Gallagher is an education and personal finance blogger. He works with students to figure out their private student loan consolidation for when they graduate.