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Best Credit Unions – December 2019

Credit unions are like banks in most ways but with differences that may appeal to you.
By Marcie Geffner, Contributor Updated: 2019-6-18
By Marcie Geffner, Contributor Updated: 2019-6-18
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A credit union is a nonprofit savings and lending cooperative that's owned by its members. Most credit unions offer checking and savings accounts, auto loans, mortgages and home equity loans, credit cards, and other financial products and services.

"As member-owned and cooperative institutions, credit unions provide a safe place to save and borrow at reasonable rates," says MyCreditUnion.gov, a website operated by the National Credit Union Administration, a federal government agency that charters and regulates credit unions, and insures their deposits.

Credit union members usually share a connection through their employer or another group affiliation or their geographic location. Examples of group affiliations include religious organizations, schools, labor unions and homeowner associations. Family members of someone who qualifies to join a credit union usually can also join that credit union.

Credit unions got their start as small, community-based organizations. Today, the largest credit union in the United States has 7.9 million members, according to Credit Union Times, and three others top 1 million members. These large credit unions aren't the norm, however. Most have far fewer members.

Credit unions collectively have more than 110 million members and hold deposits totaling $1.1 trillion, American Banker reported in 2018.

Rather than earn profits for shareholders the way banks do, credit unions exist to serve their members. Since a credit union doesn't have a profit motive, any "profits" it earns can be returned to its members in various ways.

"Profits at a credit union go back to members in the form of lower interest rates on loans, higher dividend rates on deposits, and low- or no-fee services, whereas at a bank, those profits are returned to shareholders," says Deidre Davis, chief marketing officer at MSU Federal Credit Union, a university-based credit union in East Lansing, Michigan, with more than 265,000 members.

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Credit unions and banks both provide deposit accounts and loans for consumers and businesses. There, the similarities end and the differences begin.

Here are some of the differences:

  • Banks have owners and customers. Credit unions have members. "Every member owns one share, so each member has the same ownership (and the same) voting rights to elect a board of directors," Davis says. "At a bank, the more stock someone owns, the more votes they get."
  • Banks tend to offer lower interest rates for deposits. (But not always.)
  • Banks tend to charge higher interest rates for loans. (But not always.)
  • Banks tend to charge higher fees. (But not always.)
  • Banks may offer more products and services.
  • Banks generally offer better credit card reward programs.
  • Banks, especially national or regional ones, tend to have more branch locations. However, credit unions may not be as small as they seem, because they can expand their reach through networks that enable members of one credit union to access services, such as ATMs and branches, at other credit unions.
  • Banks tend to have more robust online services and mobile banking apps. Credit unions are making progress toward catching up.
  • Bank deposits are usually insured by the Federal Deposit Insurance Corp. Credit union deposits may be insured by the National Credit Union Administration or a state government agency.
  • Credit unions enjoy a reputation for superior customer satisfaction. However, though credit unions traditionally rate higher than banks, a 2018 survey by the American Customer Satisfaction Index showed the two rate the same in customer satisfaction.

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With thousands of credit unions, ranging from small to large, they're not identical, but certain generalizations can be made.

Pros

  • Credit unions are tax-exempt, not-for-profit organizations controlled by boards of directors who are elected by the credit union's members.

  • Credit unions generally offer higher interest rates for deposit accounts, such as checking and savings.

  • Credit unions generally offer low interest rates for auto financing, home mortgages and other consumer loans.

  • Credit unions may charge lower fees than banks.

  • Most credit unions offer many types of savings and lending products and services.

  • Credit unions generally have a reputation for personal service, friendliness and high customer satisfaction.

  • Credit unions may have easier and more flexible lending guidelines.

Cons

  • All credit unions have membership criteria. While these requirements may be easy to meet, they're not open to everyone everywhere.

  • Credit unions may charge a fee to join. The amount may be as nominal as say, $5, but it's not zero.

  • Small credit unions may not offer a full menu of products and services. For example, credit cards and business loans might not be available at some credit unions.

  • Credit cards offered by credit unions might not come with cash-back, mileage or travel reward programs.

  • Credit unions may have few branch locations and limited numbers of ATMs.

  • Credit unions' online banking and mobile apps may be less robust and have fewer features than those offered by banks.

"Many credit unions offer a full range of financial products, ATM and branch coverage through a cooperative network, and robust online and mobile banking,” Davis says.

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The short answer is yes. Beyond that, it's a bit more complicated.

Credit unions come in two types:

  • federally chartered credit unions regulated by the NCUA
  • state-chartered credit unions regulated by state-level government agencies

At the end of 2016, there were 3,608 federally chartered credit unions and 2,298 state-chartered credit unions in the United States, according to the National Association of State Credit Union Supervisors. Four states – Arkansas, Delaware, South Dakota and Wyoming – and the District of Columbia don't charter credit unions. That means all of the credit unions in those jurisdictions are federally chartered.

While there may be subtle differences in how federally chartered and state-chartered credit unions operate, the most important difference for members concerns deposit insurance.

Deposits at federally chartered credit unions are insured by the NCUA though its National Credit Union Share Insurance Fund.

"Like the FDIC's Deposit Insurance Fund, the NCUSIF is a federal insurance fund backed by the full faith and credit of the United States government," says MyCreditUnion.gov.

Deposits at state-chartered credit unions may be federally insured or by a state government agency. A small percentage of state-chartered credit unions participate in a credit union-owned share insurance fund, American Share Insurance.

Any credit union that doesn't have federal deposit insurance must "clearly and conspicuously inform consumers" that their deposits aren't federally insured, according to a March 2017 Government Accountability Office report.

Deposit insurance is important because it protects depositors from losses, up to the insurance limits of $250,000 per depositor, if the credit union fails.

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Choosing a credit union is largely a matter of personal preference; however, there are some important factors to consider.

Your first consideration should be the membership requirements. If you're not within a credit union's "field of membership" and you don't have any family members who are within the field, you won't be able to join that credit union.

To find a credit union that you can join, start with your employer. Ask your co-workers or human resources department whether the company is affiliated with a credit union. Also ask your family members whether they're eligible to join a credit union. (Tip: Usually, your family member doesn't have to join the credit union but only be eligible to join for you to do so.)

You can also search for credit unions based on your occupation, such as being a teacher, or your affiliation with an association or group. Examples include professional or trade groups, college alumni associations, religious organizations, parent-teacher associations and homeowner associations.

Many locations have at least one geographically based credit union. To find credit unions in your area, use NCUA's Credit Union Locator search function. (Tip: If you work for a large corporation, organization or government agency, try searching by credit union name to locate an affiliated credit union.)

Some credit unions are open to people who make a donation to a charitable organization, so that's another option to find one you can join regardless of where you work, where you live or who your relatives are.

Your second consideration should be which credit union offers the financial products and services you want. Whether you need a checking account, savings account, credit card, auto loan, mortgage or business loan, you should find out which credit unions offer that product or service and which don't before you become a member. If you're not sure, join a larger credit union that offers a wider selection of products and services.

"Some smaller credit unions may offer limited financial services. However, some larger credit unions now can provide everything, including investments, insurance products, mortgage, business, and consumer lending and depository accounts,” says WenFang Bruchett, a former bank and credit union branch manager and founder of BlissFinance, a financial education firm based in Houston.

Other factors to consider when you choose a credit union include:

  • Savings rates
  • Lending rates
  • Deposit insurance
  • Credit card rewards program
  • Branch locations
  • ATM locations
  • Membership fee
  • Monthly checking account fee, if any
  • ATM fees
  • Other fees
  • Online banking services
  • Mobile app functionality

A credit union that belongs to the national Co-op network has almost 30,000 surcharge-free ATMs and 5,600 shared branches at credit unions in all 50 U.S. states, according to its website.

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Joining a credit union and opening an account might seem challenging, given that there are membership and eligibility requirements. That's a misperception, however. In fact, the process to join a credit union isn't difficult.

The first step is to find a credit union that you are eligible to join. Most people can join multiple credit unions, so it's smart to shop around and compare what different credit unions offer before you choose one that fits your needs and preferences.

The second step is to apply to become a member. You'll need to supply your address, valid government-issued identification and Social Security number or tax identification number, and indicate why you're eligible to join.

Some credit unions may review your credit or banking history before you're approved. You may be charged a small one-time fee to become a credit union member.

Once your membership is approved, you can open an account and make an initial deposit. Some credit unions allow you to open an account online.

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If you have excellent or good credit, you may find that getting a loan with an attractive rate and favorable terms from a bank or credit union is equally easy. If your credit is only fair or poor, the answer is more complicated.

Credit unions may have more flexible standards to approve your loan and may be willing to look at factors beyond your credit history or credit score.

"Credit unions are often willing to work with borrowers who have lower credit scores (because they seek to) serve people who live, work, worship or go to school in a particular geographic area," Davis says.

Local control and decision-making can also help if you need flexibility to qualify.

"At some credit unions, the local branch manager has the authority to approve personal loan requests on the spot. The underwriting guidelines are less stringent," says Bruchett.

Credit unions also tend to offer lower rates, which can help you qualify for a larger loan amount with the same qualifying guidelines.

Credit unions are especially competitive in car loans, often offering significantly lower rates for this type of loan. If you're shopping for a car loan, that could make a credit union a good place to apply.

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ACH. Automated clearing house, an electronic network for fund transfers such as bill payments and payroll direct deposit.

APR. Annual percentage rate, an interest rate stated as a full-year rate. APR can include fees associated with a loan, giving the borrower more information about the cost of the loan.

APY. Annual percentage yield, the effective annual rate of return taking into account the effect of compounding interest.

Check clearing. The process of the funds in a check becoming available for the payee to use. When the funds are fully available, the check is said to have "cleared."

Checking account. A deposit account that allows unlimited withdrawals by writing a check or with a debit card.

Co-op network. A collection of ATMs or branch networks that can be accessed by credit union members.

Credit union. A nonprofit and tax-exempt savings and lending cooperative organization that's owned by its members, who vote for the board of directors that oversees management.

Direct deposit. A transfer of funds directly to a recipient's deposit account without the need to deposit a paper check and wait for it to clear.

Deposit insurance. A financial product that protects depositors from losses if a bank or credit union where they have deposited money fails. Most deposit insurance is provided by the federal government or a state government agency.

Funds availability. The amount of money in an account that the account holder can use. When the account balance is higher than the funds available, it often reflects that the funds in a check deposited to the account have not yet cleared.

Remote deposit capture. A technology that enables bank customers or credit union members to scan paper checks and transmit check images electronically to be cleared and have the funds deposited.

Share account. A savings account offered by a credit union rather than a bank.

Share certificate. A certificate of deposit, or CD, offered by a credit union rather than a bank.

Share draft account. A checking account offered by a credit union rather than a bank.

National Credit Union Administration. A federal government agency that regulates federally chartered credit unions and insures their deposits.

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Top Credit Union Savings Account Rates

Data Updated: 2019-12-9

Data in this table does not include all banks or available bank products, and may differ from offers listed elsewhere.