Five Reasons to Ditch Your Bank and Join a Credit Union

When you think about money-saving it, paying bills with it, earning interest on it-you probably think of a bank. Or possibly Scrooge McDuck swimming in a pool filled with gold coins-but probably a bank. The average person in this country has more than five bank accounts, after all, despite the fact that banks aren't always the best or friendliest places to stash your cash. Banks are the default location for your money so you can earn a (depressingly small) amount of interest, have a place to deposit your paychecks, and pay bills.

But they're not the only choice for those services. If you're looking for a place to stash your savings and perform standard financial transactions, you should look into credit unions. Although the number of credit unions has dropped over the years (there are currently about 4,600 insured credit unions around the country), their membership has steadily risen, with close to 140 million members as of last year.

There are some very good reasons why more and more people are joining credit unions-reasons you should consider, too.

The main differences between a credit union and a bank

At a glance, credit unions look just like banks. They both offer many of the same services, including checking and savings accounts, loans, and other financial products. The fundamental difference between a bank and a credit union is the profit motive: Banks operate on a for-profit basis, while credit unions operate on a non-profit basis. In other words, the bank takes your money, invests it, and pays you a criminally tiny amount of interest for the privilege. A credit union re-invests any profits into its membership and the community.

The other difference is in who uses them. Banks are open to anyone, although they can close an account or refuse to open one under certain circumstances. Credit unions are run on a membership basis, and there's usually a requirement around that membership that adheres to standards set by the National Credit Union Administration (NCUA), whether it's a specific profession, a local group like a church or school, or living in a specific community. Just like banks, credit union funds are federally insured up to $250,000, but the NCUA handles the insurance instead of The Federal Deposit Insurance Corporation (FDIC).

In practice, credit unions function very similarly to banks. But their non-profit orientation and community focus offer several key benefits that make joining one a very good idea.

Benefits to joining a credit union

Credit unions offer several benefits over a bank:

• Higher savings rates. Because credit unions use their profits to benefit their members, they almost always offer significantly higher rates on savings accounts, certificates of deposit (CDs), and other financial products (with some exceptions).

• Lower borrowing rates. Credit unions also tend to offer better deals on loans and mortgages, including 15- and 30-year fixed rate mortgages. Their used car loans are significantly better-the average interest rate on a 48-month used car loan at a credit union is about 1.5 points better than at a bank.

• Fewer fees and lower minimums. Credit unions usually offer fewer and lower fees than banks. For example, checking accounts can be 79% less expensive at credit unions than at national banks, and 54% cheaper than even small community banks.

• Community and voice. The crucial aspect of a credit union is that you become a co-owner when you join. That gives you a vote and a voice in terms of choosing board members, setting policy, and influencing where the credit union invests its funds. That also means that credit unions tend to be much more community-focused than banks, and more willing to make loans to small businesses that banks might consider too risky or offering too little return.

• Flexibility. Because you're a member (and co-owner) of the credit union, it's often much easier to qualify for loans or to make special financial arrangements than it is through a bank. That doesn't mean there are no qualifications to meet or that the credit union just hands out money, but they're often more willing to work with their members despite low credit scores or other problems that the banks won't deal with.

Downsides to consider

One downside to consider with a credit union is the ATM network: Some credit unions don't have a large reach in terms of ATM access. Many are members of third-party ATM networks like Allpoint or MoneyPass which can expand their reach, so it's worth checking on this if you use your ATM card a lot.

While credit unions offer a lot of advantages, there are circumstances when banks will be your best option, of course. Banks offer more services, as a rule. And since credit unions have membership requirements, you might not be able to find one that you can easily join. And larger banks also offer a national (and possibly international) reach as well as more robust and secure online tools than some credit unions. But if you're looking for a locally-focused banking experience that offers you a voice, a local credit union (here's how to start looking for one) can't be beat in terms of local focus, costs, and engagement.