The Benefits of Investing in Credit Unions Vs Traditional Banks

You may have driven past a local credit union and not given much thought to how it differs from a regular bank such as Citi and Wells Fargo, Bank of America, Chase, or JP Morgan. However, credit unions operate very differently from traditional banks. Because of the way in which credit unions are operated, you may earn a higher return on your money if you move your money out of a regular bank.

A credit union, unlike a traditional bank, is technically defined as a not-for-profit organization. That does not mean that it is a charity, however. What it means is that the board of directors who runs the credit union's operations is composed of elected volunteers. These volunteers are also credit union members who have financial accounts with the credit union. Money that is invested in member financial accounts is still loaned out, at interest, to other credit union members. Additional investments may also be made with the money.

Credit union memberships are usually limited to members of a certain national group, geographic location, occupation, etc. Some examples include the Polish and Slavic Federal Credit Union, Summit Credit Union (Wisconsin), and the Construction Federal Credit Union. A credit union that does not limit its membership in some way actually risks losing its status as a credit union.

Because a credit union operates on a not-for-profit status, and thus has lower overhead costs, it can usually offer higher interest rate returns to its members on their savings and checking accounts. Additionally, credit unions are often able to offer business and home loans to members who would not normally qualify for these loans at traditional banks. These features place credit unions at a tremendous advantage over traditional banks. These features also allow small businesses to gain a foothold in the community and stimulate local economic growth.

Just like traditional banks, credit unions are insured. The National Credit Union Share Insurance Fund (NCUSIF) is offered by the National Credit Union Association (NCUA), and is a government-backed insurance fund that operates much like the Federal Deposit Insurance Corporation (FDIC) for banks. However, NCUSIF insurance is financed entirely by the credit union, and not by the government.

Because credit unions are less focused on institutional and more on member profitability, and also because they enhance community growth, local groups have been advising people to move their money out of traditional banks and into credit unions. MoveYourMoney is one of the most prominent groups thus far, and openly advocates moving financial accounts out of traditional banks and into credit unions or more local banks.