I took out several student loans for graduate school; the one with the lowest interest rate – by far – came from a credit union. I was impressed with its low rates and prompt customer service, but I still had one question: what is a credit union?
Having used traditional banks my whole life, this was my first time dealing with one. Since then, I’ve discovered that credit unions have serious advantages for their members.
Credit unions are non-profit collectives that offer low rates and great terms. Read on to learn more about credit unions, and the pros and cons of a credit union versus a bank.
What is a credit union?
Credit unions are cooperative financial institutions owned and operated by their members. Credit unions are run by a board of volunteer directors with a focus on helping members succeed financially. This structure differs from a bank, which is a for-profit business beholden to stockholders.
Credit unions offer the same financial products as banks, including checking accounts, savings accounts, loans, credit cards, and certificates of deposit (CDs). Members can use any of the 30,000 fee-free ATMs in the credit union network, as well as conduct transactions in person at any branch around the country.
To become a member, you must meet certain requirements. Some credit unions are available to those who work or study at a certain school, such as the credit union I joined to get a graduate school loan. Others welcome members based on location, employer, family, or membership in a group (a place of worship, labor union, or homeowner’s association).
Here’s one other difference you should know about a credit union versus a bank — credit unions have a different vocabulary. Checking accounts are called “share draft accounts,” and savings accounts are usually called “primary share accounts.” These terms reflect the fact that credit union members aren’t customers, they’re partial owners.
Credit union vs. bank: what are the advantages of credit unions?
1. Higher rates of return on deposit accounts
Credit unions typically offer the highest rates of return on deposit accounts. Alliant Credit Union, for instance, offers a 1% annual percentage yield (APY) on savings accounts. The basic savings account at Citizens Bank offers only 0.01% APY.
Credit unions also offer higher interest rates on CDs. According to a credit union versus bank comparison by independent company SNL Financial, credit unions offer CD interest rates of 1.34%. Banks average interest rates of 1.15%.
2. Lower interest on loans and credit cards
As I mentioned, my lowest student loan interest rate came from a credit union. Credit unions also tend to give low rates on car loans and credit card loans. SNL Financial, found that the average 60-month new car loan from a credit union had a 2.71% interest rate. The same loan from a bank averaged a 4.65% rate.
3. Lower transaction fees
Credit unions typically charge fewer and lower transaction fees than national banks. Unlike banks, many credit unions don’t require a minimum balance in checking accounts and don’t charge a monthly service fee.
If you overdraw from your account, the credit union will likely charge a lower overdraft fee than a bank. Alliant Credit Union, for instance, charges $25 for non-sufficient funds. Citizens Bank charges $35.
4. Attentive customer service
Finally, the best credit unions value prompt and helpful customer service. You probably won’t get an automated menu of options when you call your credit union. Instead, you should be able to connect with a person right away. Additionally, credit unions offer financial resources to educate members.
What are the disadvantages of credit unions?
1. Not a ton of ATM locations
If you’re a part of a credit union, you can use any ATM in the co-op network or other partner. However, you may still find there aren’t as many locations as a national bank. This can especially be a problem if you’re traveling internationally.
2. Fewer financial products
Not all credit unions offer the same range of financial products as national banks. If you have specific needs, a credit union may not be able to meet them fully.
3. Less appealing credit card rewards programs
Credit unions don’t always have credit cards with the most lucrative rewards. You may not find the same sign-up bonuses or ongoing rewards programs as you would from a private lender.
4. Less advanced online services and app functions
Credit unions have a reputation for not being as up-to-date with online services and mobile banking as national banks. Whether this is still true is a matter of debate. Regardless, if technology in banking is important to you, you should research a credit union’s services before joining.
Should you join a credit union?
If you’re looking for low fees and high rates of return, then joining a credit union could be a great option. Many members also enjoy the non-profit, cooperative structure of credit unions.
Before joining, look into the potential disadvantages to see if there are any deal-breakers. If you’re torn, you could also consider keeping accounts in both a credit union and a bank. You could use the credit union for your savings or to take out loans. Then you could rely on your bank for a checking account and international transactions.
Where to find the best credit unions near you
There are over 7,000 credit unions in the U.S. with over 100 million members. To find the best credit unions, check out CUNA’s useful “credit union locator” tool. Some credit unions require specific associations. Others let anyone in the area join with a deposit between $5 and $25.
By looking into the best credit unions, you can find a financial institution with the best rates, fees, and products to meet your financial needs. For more on how to choose the right checking account, check out this guide. To compare transaction fees at various banks, head over to the banks page of the Student Loan Hero Marketplace.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|