I’m sure that if you have been reading our posts on banking (Banking Basics 101 Part 1, Part 2, Part 3, Part 4) that you know where I stand on banks. You need the assistance and the power that banks are able to offer to really make your money work for you. Making your money work for you is going to go a long way towards helping you reach your personal and financial goals. But what happens if you are not comfortable with your big, corporate, impersonal bank? What options are out there to assist you in your journey?
These days you have a lot of options, and a lot of alternatives to traditional banks. We’re going to take an in-depth look at my personal favorite alternative to traditional banks, called the credit union.
Credit unions operate much like banks, but are actually quite different from your traditional big corporate bank. They offer many of the same products as banks, and your deposit accounts are insured federally. They are not insured by the FDIC, but instead are insured by the NCUA. NCUA is short for National Credit Union Administration. As with traditional banks these accounts are currently insured for $250,000 until the end of 2013 after which the insured amount falls back to $100,000. That may sound concerning to those of you who are sitting on tons of cash, but as always, your local bank or credit union branch can help you with options to maximize your insurance coverage. (There could be a longer lesson here but let’s just say with two people you can insure a lot of money.)
The key difference between banks and credit unions is at the core of how they are organized. Whereas a traditional big bank has a very corporate structure, credit unions are a nonprofit, member-owned cooperative whose members share something in common that qualifies them for membership. That something can be a common labor union, alumni association, employer, or even often times if you simply live in the same community. Usually immediate families of members are also eligible for membership.
One big benefit of joining a credit union is this: Profits are returned to members. What this means for members is that interest rates for checking and savings accounts tend to be higher than commercial banks. Also, fees are typically much lower. As an example, I am a member of the State Employees Credit Union of North Carolina: my NSF fees are $12, my ATM fee is $.75, my monthly fee on my checking account is $1, and my interest rates typically go between 2.0% and 1.75% APY for my checking and savings accounts.
Another big advantage of credit unions is service. Credit unions are member centric because, technically speaking, you are a member owner, as you have bought a share of the company to be eligible for membership. To learn if you are eligible to join a credit union or to locate a credit union near you can always call the NCUA at 800-356-9655 or visit the NCUA online. I would highly recommend checking out to see what credit unions you are eligible for as they are an excellent alternative to commercial banks.
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