In many ways, credit unions are just like regular banks. They offer checking and savings accounts, loans, credit cards, and all the other financial products you’d expect, but there’s one characteristic that really sets them apart: the people who profit. Credit unions are not-for-profit, and every member is also an owner. Consequently, it’s the members, not bank executives or shareholders, who reap the benefits of a credit union’s investments.
Those benefits can most clearly be seen in credit unions’ lower loan rates, higher savings rates, and lower fees. But the credit union difference isn’t limited to monetary savings. In addition to providing excellent customer service, many credit unions give back to their local communities in a variety of creative and generous ways. Some work to promote economic and social justice by reaching out to low-income, rural and at-risk populations. Others provide free financial education services to adults and children. And that’s just the tip of the iceberg. Here are some of the amazing ways that credit unions support community development.
No-fee checking and savings accounts. Everyone deserves a safe and affordable place to keep their money. However, many low-income people avoid banks because they don’t believe they can afford them. Many big banks require a minimum balance to avoid monthly fees, and if you opt for overdraft protection, that adds an extra $30 or more for each underfunded payment transaction. Although most monthly account fees cost less than alternative financial services, like check-cashing, they’re still less than ideal for people with a limited income. For this reason, many credit unions offer some of the best checking accounts with no fees, and the highest-yield savings accounts, providing a secure and affordable for people to keep their hard-earned cash.
Financial literacy training. Good financial planning skills don’t come naturally. Not everyone is fortunate enough to learn about money management in school or from their families. Many credit unions reach out to their members by providing financial literacy training resources. These many include community classes, free credit counseling, online courses, and pamphlets. Many have multilingual, in-person, online or customized offerings.
Microloans for individuals and businesses. Some businesses are too small to qualify for business loans at traditional banks. Alternatively, people may not need to borrow as much as the typical business loan minimum, and want to avoid relatively unregulated business credit cards. Some credit unions offer smaller loans to their business members, called microloans, which can are appropriately sized for each business’ unique needs. Many credit unions have microloans for individuals, too. Most low-income neighborhoods have a disproportionately high number of predatory lending services, such as payday lenders. In response, many credit unions have starting offering small loans, some as little as $200, with lower interest rates and more flexible terms.
Low APR credit cards. When you’ve got bad credit or need to build credit, it’s hard to get a credit card with reasonable terms. Credit union credit cards generally have lower APRs and fees, which make them a great resource for people looking to build credit. Building credit is particularly essential for low-income community members, since loans can be the only way for them to finance a business or pull themselves out of debt. Federal credit unions are barred from charging interest rates higher than 18 percent, but banks have no such restrictions. Even the relatively decent Chase Freedom, for example, has an APR of up to 22.99 percent.
Grants and scholarships. Some credit unions give their profits back to local students or nonprofit organizations through grants and scholarships. Alliant Credit Union in Chicago offers five $2,000 scholarships and over $5,000 in computer gift certificates to local students each year. Freedom First Federal Credit Union in Salem, Va., gives thousands of dollars in grants to local nonprofits focused on promoting poverty reduction, affordable housing, financial education, health and human services, arts, and culture.
School and university outreach. Experts say money management skills are best learned at a young age. Some credit unions take this to heart by reaching out to local schools and universities. Alternatives Federal Credit Union in Ithaca, N.Y., runs nine “student credit unions” in local elementary schools. Their special program lets kids manage their own bank account and learn about saving. Generations Federal Credit Union runs an award-winning program called No Suckers Here, which helps students in local high schools, colleges and universities understand basic financial concepts.
Tim Chen is the CEO of NerdWallet, an unbiased credit card comparison website dedicated to helping you find the best credit cards.