What You Need to Know About Credit Unions

What You Need to Know About Credit Unions
  • Opening Intro -

    Most people keep their money in a bank, but credit unions are an option for millions of Americans.

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Should you put your money in a credit union?

Unlike most banks, credit unions are member-owned financial institutions and are democratically controlled by its members. Credit unions exist to promote thrift, by providing credit at competitive rates and offering other services to its members.

History & Insurance

Credit unions can be traced back to Germany in 1852, with the first credit union opening in the United States a half century later. Today, more than 70 million Americans belong to credit unions with more than 11,000 credit unions found across the country according to the Credit Union National Association.

Although fairly well known, credit unions are oftentimes misunderstood. Credit unions are not banks, but these organizations provide many of the same services you’d find in a community bank. Banks are insured by the Federal Deposit Insurance Corp. whereas credit unions are insured by the National Credit Union Insurance Fund with funds insured at $250,000 per customer. The NCUSIF like the FDIC is backed by the full faith and credit of the U.S. Government.

Restricted Membership

Unlike banks, which are open to all, credit unions have restricted memberships. Many people are able to gain access to a credit union through their employer. Others are able to join through their church, a civic organization or through their community. Such restrictions are mandated by law, not by the credit unions themselves notes Bankrate. Still, if you want to join a credit union, you may find that your school is part of one. In some instances, relatives of credit union members can also join.

Credit unions offer retirement accounts, IRAs that are insured separately for up to $250,000 each. If you have a small business, you can open up an account too and have it insured up to the quarter-million dollar limit.

Rating Tool

Like any financial institution, you’ll want to check its strength or solvency. Bankrate offers a bank rating tool that assigns a star rating to individual credit unions. Five stars is the highest rating; one star is the lowest. Some credit unions are NR — not rated. Detailed information about each institution including a financial statement can be found on the Bankrate site.

Finally, all credit unions insured by the NCUSIF are required to display the official NCUA insurance sign. If you don’t see one, then ask!

See AlsoAre Credit Unions Better Than Banks?

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Categories: Money Management