When considering which credit union to join, you may wonder if all versions are the same. Although most credit unions offer outstanding benefits, there are significant differences in what each offers and who’s qualified to be a member. In this guide, we will explore the benefits of each type of credit union to determine which is the best.
Here’s a list of the most common types of credit unions:
- Federal Credit Unions
- State Credit Unions
- College Credit Unions
- Military Credit Unions
- Community Credit Unions
Federal Credit Unions
A federal credit union (FCU) is a credit union regulated and monitored by the National Credit Union Association (NCUA). The NCUA is a federal agency created by the Federal Credit Union Act of 1934 to encourage saving deposits and the funding of mortgage schemes and other community-related financial services.
The NCUA supervises the National Credit Union Share Insurance Fund (NCUSIF). The NCUSIF insures deposits of at least $250,000 at federal credit unions. This applies to each shareholder, for each account ownership class, per insured credit union.
Federal credit unions are one of the leading categories of mutual companies in America. Mutual companies are privately owned, cooperative organizations coordinated by their members rather than external shareholders. Membership requirements are usually based on specific member participation, such as firefighter unions, teacher unions, and federal worker unions.
Federal credit unions have different membership requirements based on location and other criteria. Members can own shares based on their deposit amounts. Hence, the general threshold amount a member needs to have a deposit account is equal to a share in the organization.
The following are examples of federal credit unions:
- Affinity Plus Federal Credit Union
- AFL-CIO Employees Federal Credit Union
- Balvoir Federal Credit Union
- PrimeWay Federal Credit Union
- Randolph-Brooks Federal Credit Union
- Tyco Federal Credit Union
- Partners Federal Union
State Credit Unions
State credit unions are supervised by the state’s regulatory authority. Deposits in state credit unions can be federally insured as well as privately insured. Federal and state regulatory authorities insure deposits of at least $250,000. However, the circumstances of how those accounts are insured and who regulates them varies.
State credit unions have some advantages. First, federal credit unions have strict interest rate regulations, while some states might have higher or no limits on interest rate fees. Furthermore, state supervisory bodies are likely to have a greater level of closeness with their local credit unions than the NCUA has with federal credit unions.
However, not every state has a supervisory body. States like Wyoming, Arkansas, Delaware, South Dakota, and the District of Columbia do not have state supervisory bodies. Therefore, all state credit unions operating in the above-listed states must be federally regulated.
Not every state credit union possesses deposit insurance supported by the full backing of the American government. Some state laws demand that state credit unions be federally insured. The NCUA insures state credit unions that desire federal insurance qualification.
Some examples of state credit unions include
- California Credit Union
- Seattle Credit Union
- MidFlorida Credit Union
- Lake Michigan Credit Union
College Credit Unions
Several academic institutions have college credit unions accessible to students, tutors, faculty, and staff. College credit unions offer an exceptional and easy way for young adults to obtain credit union membership. Many colleges have credit unions on campus, making them easily accessible to students.
When one of our young adults is about to finish their high school education and apply for university admission, college credit unions provide affordable borrowing and funding options. Student loan rates are usually lower with college credit unions than with other lenders. These low fees will help students channel more resources towards college expenses and tuition fees.
Another benefit of college credit unions is the ability to organize free classes or online seminars. Issues discussed may include things like how to develop and maintain a budget or what to consider when purchasing a car. This can be extremely helpful for students who are independent for the first time in their lives. Resources and facilities provided by college credit unions educate students on money and groom them for success.
In addition, the benefits college credit unions offer don’t stop once a student graduates from college. Usually, college credit union membership expands to alumni as well. This means college graduates can enjoy the benefits of a college credit union even after they’ve finished their college education. This is another reason why college credit unions are an outstanding platform for future wealth creation, such as lower interest fees on a home loan.
Some of the notable college credit unions are:
- University of Michigan Credit Union
- University of Wisconsin Credit Union
- Oakland University Credit Union
- Florida State University Credit Union
- Georgetown University Alumni and Student Federal Credit Union
- Michigan State University Federal Credit Union
- Michigan Schools and Government Credit Union
Military Credit Unions
A military credit union is a financial institution that provides special products and services to the members of the armed forces. Military credit unions are well-known among service members because they offer many kinds of specialized accounts, benefits, and activities and options designed for the military way of life. Though most credit unions target a larger audience, military credit unions mainly concentrate on military personnel, veterans and their families.
Like college credit unions, most military credit unions are established close to or on military bases for ease of access. They provide incentives that cater to those on deployment. Service members, along with their families, have special banking needs that military credit unions are created to meet.
Military credit unions are also experienced in federal programs such as VA home loans. Financed by the government, these loans are among the very few 0% down payment loans available in the United States.
Navy Federal Credit Union is the biggest military credit union in the world. Traditional banks like Wells Fargo, Bank of America, U.S. Bank, and Chase also have services especially designed to accommodate service members.
The following are among the best military credit unions that cater to the needs of the armed forces.
- Navy Federal Credit Union
- PenFed Credit Union
- Air Force Federal Credit Union
- Pentagon Federal Credit Union
- NavyArmy Community Credit Union, Texas
The Association of Military Banks of America was established in 1959. It is a non-profit trade association created for service members and their loved ones globally. The Defense Credit Union Council represents credit unions working on military bases.
Community Credit Unions
Community credit unions offer membership to individuals who live or work in a certain location. This implies virtually anyone in that location is qualified to participate. These institutions help to add value to their targeted areas in many ways.
Community credit unions give back to society. They offer paid time off to do volunteer activities to make a positive difference in the communities they serve. In addition, they support local organizations through the establishment of a community fund.
Many of these organizations provides aid to non-profits aimed at tackling homelessness and encouraging economic growth in that area. They raise funds and resources for local medical facilities, assemble contributions to food banks, and educate young adults on financial education.
These credit unions cater to their community’s development. They help members invest in our future, and that starts with making the right financial decisions.
Some community credit unions include:
- Fox Communities Credit Union
- Five County Credit Union
- Hawaii Community Federal Credit Union
- Cascade Community Federal Credit Union
- Delta Community Credit Union
- Santa Clara Federal Credit Union
What Is a Credit Union?
A credit union is a type of financial institution that offers conventional banking services to its members. Credit unions have limited options when compared with mainstream banking institutions. However, they provide their members with easy access to affordable packages.
Credit unions are formed, managed, and coordinated by their members. They are excluded from paying income tax on their revenue since they’re not publicly traded.
Members gather their money together. This pooling process is technically related to purchasing shares in the credit union to provide loans and other services to members. Any revenue generated is used to finance programs and projects that will protect members’ interests.
Requirements for Membership
Membership in a credit union was initially intended for individuals who shared a common vision, such as working in the same company, industry or community. However, credit unions have cut back the restrictions on participation, expanding the population of potential members.
To do any financial transaction in a credit union, you must have a deposit account. Then, you become a member and part owner, which means you have the right to take part in the union’s activities. This includes having a vote when selecting the board of directors and making choices facing the union. The thing I like about these credit unions is that every member has equal voting strength.
The National Credit Union Administration (NCUA) says membership in federal credit unions increased to 122.3 million and total assets were $1.75 trillion as of June 2020.
What are the Advantages of Credit Unions
Just like traditional banking institutions, the strategy of generating revenue at credit unions starts by encouraging deposits. In this aspect, they have two clear advantages over banks.
- Credit unions are excluded from paying company income tax on their revenue.
- Credit unions just need to make enough money to finance daily expenses. Therefore, they have slimmer operating margins than banks obliged by shareholders to Increase revenue every business year. The ability to work with slim margins enables credit unions to pay higher interest rates on savings. In summary, a credit union can save members money on loans, deposits and saving packages.
According to the National Credit Union Administration (NCUA), the national average for five-year certificates of deposits (CDs) offered by banks was 0.76%, compared to an average rate of 0.94% at credit unions.
What Are the Disadvantages of Credit Unions?
Credit unions have fewer physical locations than the majority of banks, which can be a limitation for members who prefer in-person service. The small size of many credit unions can lead to a deficiency in service delivery, accessibility, and technology.
Small-scale credit unions usually do not possess the same technology as banks. Therefore, their website and security capabilities are less advanced. However, mid-sized and bigger credit unions may provide digital banking applications that contend with those of bigger banking institutions.
Little or No Variety
Although credit unions offer the majority of the financial services that banks do, they usually provide less variety. For example, Bank of America has 22 different credit card alternatives from loyalty cards to student cards, while the largest military credit union in the world, Navy Federal Credit Union has only six. The State Employees’ Credit Union (SECU) has only one credit card.
Banks stay open longer and later because of the availability of abundant resources to set aside for customer service and staff. On the other hand, credit unions maintain traditional banks’ working hours (8 am to 4 pm on weekdays). Larger credit unions like SECU, have a round-the-clock customer care hotline.
Compared to most banks, credit unions are substantially smaller and are designed to cater to a certain community, industry, or organization. But just because credit unions often have fewer locations doesn’t mean they can’t have a reach comparable to that of major banks. An ATM network made up of many credit unions was created to increase their reach.
Although credit unions must still earn enough to cover operating costs, the lack of a need to turn a profit typically enables them to charge lower fees and account minimums, offer higher savings rates, and charge lower borrowing rates to their members and shareholders.
Tommy Gallagher is an ex-investment banker and founder of TopMobileBanks.
He is an early participant in banking digital transformation and fintech development. His consulting clients include prominent startups in the US and Europe.
Here on topmobilebanks.com, he is covering macro trends in the digital banking industry.