Credit unions can significantly contribute to your building of a foolproof financial plan. How? Before answering this question, let me explain what is meant by the term, credit union. Credit union refers to those financial institutions that are run on a nonprofit co-operative basis. These institutions are owned and controlled by the members belonging to a particular association like a labor union, the workers of the same organization, the residents of the same community and so on. The management board is composed of the members elected from among themselves.
The members of a credit union may deposit money with it, save it there for a specified time or borrow money from it. All the functions and activities are regulated by the guidelines of The National Credit Union Administration (NCUA), a Federal agency. The deposits held by the credit unions are insured through the NCUA. Today credit unions have en enormous presence all over the USA having combined assets of over 500 billion. They are able to offer more competitive interests than the banks because of the simple reasons that they are run on a nonprofit basis and they do not have to pay taxes.
How can the credit unions make a significant difference in your personal finance situation?
As said earlier, the credit unions differ in their character from the other traditional financial institutions like banks, etc. As a member of a credit union and a depositor of money in it, you become one of the owners of the institution. They are run on a co-operative basis and as such, the interest rates and other policies are determined to the best interest of the membership as a whole. Thus, the credit unions claim to provide higher standards of services to its members. They are created with the very objective of helping its members improve their financial health.
You get all the same facilities from the credit unions as you get from the banks. Credit unions will offer you the financial services as holding savings, shares or checking accounts. They will offer you credit or debit cards. You can buy term certificates from them and home banking facilities are also available with most of the credit unions.
Then the credit unions enjoy a tax free structure of operation. The money they save by not paying any taxes is reflected in the higher rate of dividends offered to their members.
Those who are not eligible for getting a loan from the banking institutions are entitled to get loans from the credit institution against their deposits with the institution.
As a general rule, you will get higher dividend rates on shares and higher interest rates for your savings deposit. They would also charge you lower interest on loans than the banks. This is possible because, the credit unions are aimed at serving their members better instead of making profits by investing in the shares market. Whereas, the banks have to make profit to run the show and they increase their revenues by charging their clients a higher interest rate and lower dividends.
It is easy to become a part of a credit institution and the minimum deposit is also very low. However, make it a point to keep your money in a credit union that is easily accessible from your home or the office. Like the banks they may not have many branches.