The Ultimate Guide: What Is a Credit Union and Why Join One?

Source: https://www.powerfi.org/Blog/2024/November/The-Ultimate-Guide-What-Is-a-Credit-Union-and-Why

10 MIN. READ

What is a credit union? A credit union is a not-for-profit financial institution created to offer banking products and services to its members. Members are also the owners, a model that gives them access to unique benefits such as better rates and low to no fees.

The concept of credit unions dates back to Germany in the 1850s; it spread to North America during the early 20th century. The credit union model was established with a fundamental commitment to fostering financial inclusion and cooperative principles, particularly for those with modest means. This unique type of bank aimed to empower communities by democratically pooling resources, ensuring that financial services were accessible to a broader segment of the population.

Currently, credit unions are a popular banking choice. There are more than 135 million members and nearly 5,000 institutions in the U.S. The credit union movement remains rooted in the ethos of people helping people.

Key Differences Between Credit and Banks
Before we dive into the differences between credit unions and banks, let’s talk about the most important similarity: both institutions are federally insured. In other words, your money is just as safe with a credit union as it is in a bank. Every credit union account is insured for $250,000, even in the unlikely event that your credit union goes under.

Now for the differences. Banks and credit unions have fundamentally different structures, which results in several significant differences in how the two operate.

Ownership and Mission
The credit union model gives ownership to the members and typically relies on voting or the input of a board of volunteers to make important decisions.

Banks can be publicly or privately owned and primarily eUnions xist to create a profit for their owners. A publicly owned financial institution is responsible for generating a profit for its shareholders. Privately owned banks operate according to the decisions and interests of a small group of owners.

A Member-First Approach
The different ownership models result in crucial differences in how financial institutions operate and treat account holders.

Banks always emphasize the activities that generate the most profit, while credit unions have a more community-focused approach. Funds stay local and support the economy, while members can expect a more member-centric experience.

Membership
Banks don’t have membership requirements. Traditionally, credit unions required members to meet some criteria, such as working for a specific employer. However, the current trend is to widen the field of membership to any local resident.

Fees and Rates
Because banks support their owners’ interests, fees and rates must cover operational costs and generate a profit. Credit unions typically have much lower fees since the goal is simply to break even. If a credit union generates a profit, the money goes toward lowering fees and rates, directly benefiting the members.

Technology
Major banks had an advantage over credit unions in the early days of digital banking. However, credit unions have been catching up and now offer digital experiences that successfully bridge the gap between online banking and in-person experiences.

Benefits of Joining a Credit Union
Besides offering lower banking fees and rates, credit unions have strong communal values and a member-centric approach.

This model results in a more personalized approach to banking. At PFCU for example, our members are more than numbers, they are family. We help them achieve their financial goals by offering customized guidance and recommending the best banking products for their budget.

Nowadays, credit unions have a selection of banking products comparable to those offered by major financial institutions. As one of the largest credit unions in Florida, PFCU offers checking accounts with no overdraft fees, savings products and lending products with competitive rates, credit cards, and more.

Types of Accounts and Services
Why do we believe we are the best credit union in Florida? Power Financial Credit Union offers a wide range of account types and services, including:

● Savings accounts. With competitive dividends and no overdraft fees, our savings accounts are the perfect way to start building your nest egg.
● Checking accounts. No overdraft fees, fee-free ATMs, and cash-back checking are only a few of the perks we offer.
● Certificates of deposit. Our CDs are a safe way to grow your money thanks to guaranteed rates of return.
● Money market accounts. Let your money grow while retaining the flexibility of a checking account.
● Retirement accounts. We offer Traditional, Roth, and SEP IRA for all your retirement planning needs.

You can also count on us to deliver personalized services to help you navigate your changing financial needs. These services include:

● Retirement planning. Set financial goals with an expert to retire comfortably.
● Wealth management. Create a personalized financial plan to manage and grow your wealth.
● Financial counseling and education. Receive expert answers to all your financial questions.
● Loan and mortgage services. Work with one of our lending experts to finance major purchases, including real estate.
● Insurance products. Protect your home, vehicle, and more with our affordable insurance products.
● Business banking products. We offer a comprehensive range of business banking products to South Florida entrepreneurs.
● Youth and student banking products. Teach your children about financial literacy and responsible money management early with our youth banking products.
● Estate planning. Make plans for your estate with one of our experts.
● Trust services. Let us manage your assets according to the terms of your trust.

Loan Options at Credit Unions
Why borrow from a credit union? Besides offering competitive lending rates, credit unions provide a different experience.

While banks have strict criteria for issuing loans, credit unions tend to look at a broader range of factors. At PFCU, we take the time to get to know each applicant and review their unique financial situation in detail before making a decision.

We also offer a wide range of loan types for all your financing needs, including:

● Recreational loans. From motorcycles to campers, a recreational loan can cover many major purchases.
● Boat loans. Our boat loans are a popular lending product among South Florida boating enthusiasts.
● Personal loans. We offer flexible personal loans to meet your unique financial needs.
● Auto loans. Finance a new or used car purchase with one of our competitive auto loans.
● Mortgages. We make home ownership accessible with our flexible mortgage products.
● HELOCs. Take advantage of your home equity with our HELOC products.

Financial Education and Wealth Tips
What is a credit union’s mission? At PFCU, our mission includes fostering financial literacy to empower our members to make the right decisions and proactively plan their future.

That’s why we offer many resources and programs designed to make financial knowledge accessible to everyone.

Our blog is a great place to start, but we also offer online calculators, seminars, a video library, school partnerships, and more.

We aim to share the right resources based on unique life events shaping your financial needs. We also emphasize sound and proven financial strategies, such as saving early, budgeting, making your money work for you, or creating a personalized financial plan.

Improving Your Credit Score with a Credit Union
As a credit union, we always have our members’ best interests at heart. Creating personalized financial plans for our members often involves credit building, which is why we focus on educating our members about this important aspect of their finances while offering the right products to boost credit scores.

Your credit score reflects your ability to pay off debt. Lenders, landlords, and even employers can use it to make informed decisions regarding lending, housing, or hiring.

Building a strong credit score requires an extensive history of paying your bills on time, managing your debt, and balancing your available credit.

At PFCU, we can help you improve your credit score with a few different strategies:

● Our online banking platform is ideal for scheduling automated bill payments and never missing a bill.
● We offer flexible lending options so you can find the right product for your needs while keeping the cost of borrowing down.
● Our wide range of banking products gives you the opportunity to build a financial profile that includes different types of debt.
● Take advantage of personalized guidance services to get help with managing debt or building your credit history.
● If you’re struggling with loan payments, our lending department can explore refinancing options with you.

Protecting Members from Fraud and Scams
Unfortunately, cybercrime is on the rise, and criminals often target financial institutions. At PFCU, your safety is our top priority, and we are fully committed to fighting this modern threat.

We actively monitor for cyber incidents, leverage the latest technologies, and have safeguards to protect your sensitive information.

We also believe that serving our members and protecting their interests includes educating them about financial frauds and scams and how to avoid being a victim. From learning to recognize phishing and impersonation scams to dealing with identity theft, our educational resources will help keep your finances safe.

Credit Union’s Community Involvement
What is a credit union ‘s role in the community? At PFCU, creating a sense of community is central to our mission.

We support financial success at the local level by using funds to finance business ventures, loans, and other banking needs. We also help our South Florida community thrive by giving back through community involvement programs.

An example of our community involvement included matching donations to support local veterans. This initiative allowed us and our members to work together to make a difference for our country’s heroes. We also gave close to $50,000 to local charities for our 70th-anniversary celebration and donated financial literacy curriculums to local schools.

Joining a Credit Union
Joining a credit union or switching from an existing bank is easier than you think. Requirements can vary, but we have a wide field of membership at PFCU.

PFCU membership is open to anyone who lives, works, or attends school in one of 13 South Florida counties. You’re also eligible if you work at Ryder System or FLP/NextEra, or if you’re an employee or member at Bonefish & Tarpon Trust. If a family member is currently a member at PFCU, you can join as well.

We offer a simple process for joining:

● You can open an account online. You’ll have to fill out a form to tell us more about yourself and provide a valid ID and SSN. The next step is to review and select products and services you’re interested in, including a checking account, a credit card, or something else.
● You can also become a PFCU member by visiting one of our branches and completing an application with the help of a representative.

Before joining a credit union, you should ask yourself which institution makes the most sense for your unique needs. Here are a few questions to ask yourself:

● Do you meet the membership requirements of the credit union?
● What are your current and future banking needs? Does the credit union offer all the products and services you will need?
● Are there branches or ATMs in your area?
● You should also research fees, customer service, online banking options, and reputation.

The Future of Credit Unions
What’s next for credit unions? From integrating new payment technologies to leveraging AI, credit unions continue to embrace the latest technologies to unlock growth and create unique value for their members.

Rather than replacing the in-branch experience, modern digital platforms will act as touchpoints that create a seamless experience between in-person and online banking. With convenient online payment and budgeting tools, the branch experience will likely focus on personalized financial guidance services.

Credit unions have a bright future as these financial institutions successfully connect with younger generations and continue to attract a diverse audience by delivering unique value through a sense of community and accessible banking products.

FAQs
How do you open a credit union account?

Opening a credit union account is similar to opening a bank account. You will need to verify your identity and sign the usual paperwork. Some credit unions require that you work for a certain employer, live in a particular city or region, or know a current member. Some credit unions will require you to make a small deposit when you open your account. Most credit unions will let you open an account online and in person.

Why might it be easier to open an account with a bank than a credit union?

There is a common misconception that banks offer more convenient digital experiences. The truth is that credit unions are just as likely to provide a convenient onboarding experience. Credit unions typically have better customer service, which can make opening an account easier.

What are the main benefits of banking with a credit union?

As credit unions are non-profit organizations, their mission revolves around serving members rather than generating profits for shareholders, resulting in more favorable interest rates and reduced fees. Credit unions are member-owned and operate on a democratic structure that ensures member representation. A community focus and excellent customer service are part of every credit union’s values.

What does a credit union do?

A credit union offers a wide range of affordable banking products to support financial success at the local level. Using pooled funds and operating with a not-for-profit model ensures credit unions always act according to their members’ best interests.

How do you get a loan from a credit union?

The first step in securing a loan from a credit union is to become a member. Next, determine the type of loan you need, check the credit union’s eligibility criteria, and gather necessary documentation like proof of income and credit history. Schedule a meeting with a loan officer, complete the application, undergo a credit check, and, if approved, carefully review and accept the loan terms before the funds are disbursed.

At PFCU, we offer a convenient online application process. You can also visit one of our many branches to speak with a representative about our lending products.

How long do you have to be a credit union member to get a loan?

Requirements can vary, but most credit unions will allow you to join at the same time as you apply for a loan.

What is a signature loan from a credit union?

A signature loan from a credit union is an unsecured personal loan that relies solely on the borrower’s signature as a promise to repay, without requiring collateral. Also known as a “character loan” or “good faith loan,” this type of loan is approved based on the borrower’s creditworthiness and financial history. Interest rates can be higher, but a signature loan can be a good option for short-term borrowing needs.

How do you get a car loan from a credit union?

In order to secure a car loan, your credit union will require you to submit documentation such as proof of income, employment details, and information about the vehicle you intend to purchase. Credit unions typically offer competitive interest rates, and the loan approval process considers both your credit history and membership standing.

How can you refinance a car with a credit union?

Start by checking your credit score to ensure that it has improved since you initially obtained the auto loan. If it has, you’ll need to submit an application with your credit union that provides details about your existing auto loan, financial situation, and vehicle information. If approved, the credit union will offer you a new loan with potentially lower interest rates, saving you money over the life of the loan.

What is a share certificate at a credit union?

A share certificate is similar to the certificates of deposit offered by traditional banks. Members deposit a set amount, and in return they receive a higher interest rate than with a regular savings account. The funds are locked in for the agreed-upon term, and if the member withdraws the money before maturity, they may incur penalties.

What is the best credit union to bank with in Florida?

With over 73 years of experience, Power Financial Credit Union has a long history of supporting the South Florida community. We think you’ll find that we’re the best credit union in Florida if you’re looking for quality service and affordable banking. In fact, we were voted the Best Credit Union in Miami as part of the “Miami Dade Favorite Awards”, presented by the Miami Herald.