The Pros and Cons of Switching to a Credit Union

With ever-rising bank fees (and frustrations), many people are considering a switch to locally-owned credit unions. Credit union membership hit a record high in 2015, with 104.8 million memberships nationwide.

How do you decide if this is the right move for you? How do you choose a good one? Read on to learn more about this financial trend.

What is a credit union?

Credit unions are similar to traditional banks in many ways. They provide customers with standard savings and checking accounts, as well as CD and money market accounts, and can offer mortgage, home equity, personal and car loans.

But because they are based on a not-for-profit business model, their users are spared a lot of the fees and hassles big bank customers often face. They tend to offer terms and options that are more customer-friendly than other banks.

Pros

Most pride themselves on a business model that prioritizes people over profits. Indeed, according to a recent survey, credit union customers rated their overall satisfaction at 87 percent (8 percent higher than the industry average and 13 percent higher than the highest ranking bank).

Credit union customers tend to enjoy more favorable rates and fewer fees than big bank customers. In 2014, those who chose to do business at a credit union instead of a bank saved nearly $7.1 billion nationwide.

Think a credit union is the right choice for you and your household? Check out these picks from Nerd Wallet for the best military credit unions. Or visit asmarterchoice.org, an advocate of switching to credit unions that offers a free search tool to help you find the best credit union for your financial situation.

Cons

To keep costs low, credit unions tend to offer fewer products and services than for-profit financial institutions. This usually means fewer account types and less of an emphasis on emerging technologies (such as mobile banking apps). Credit unions may not offer the same financial advising services that most bigger banks provide.

Credit unions also tend to have fewer physical branches and ATM locations that traditional banks. In June 2015, there were 6,159 federally-insured credit unions, compared to more than 95,000 traditional banks. While some credit unions partner with ATM services to offer greater access to members, having to track down a place to make in-person transactions can be a hassle, especially if you’re traveling outside the area where your credit union is located.

Not sure a credit union is right for you, but still wanting to ditch your big bank? Try one of these online-only banking alternatives, many of which have little to no fees attached.

Don’t Be Afraid to Ask About CDs
When weighing your banking options think about the investing services that each bank offers. Certificates of Deposit, also known as CDs, are one of the most common banking services available. They are often a low-risk way to invest your money, but how do CDs work? They usually have a fixed sum of money, a fixed time frame and fixed interest rates. In recent years, however, many banks offer options on customizable certificates of deposit.

Photo courtesy of Retailmania.