Introduction
Many people have asked what exactly is the purpose of a federal
credit union. After all, "federal" isn't in their name and
technically belongs to another agency or organization. So, what does that make
this organization?
The purpose of a federal credit union is to provide members with
financial services not available elsewhere, including high-interest savings
accounts, insurance products, and lending opportunities. There are also several
reasons that make it more advantageous to open a credit union account instead
of a bank account.
A credit union is a form of financial institution that,
although chartered by the federal government to serve its members as needed, is
a cooperative. What does this mean? A cooperative is owned by its members. It's
for the people who have an interest in seeing it succeed and grow and thrive.
What is the advantage of a federal credit
union?
The advantage of a federal credit union is the fact that you can
use your savings for everyday expenses. You don't need to worry about losing
money on interest rates, which are usually lower than those offered by banks
and other financial institutions.
You also have access to a wide range of services and products,
including loans and lines of credit, as well as checking and savings accounts.
Federal credit unions are regulated by the National Credit Union Administration
(NCUA), an agency of the U.S. Department of Treasury. Because they're federally
chartered, they're required to meet certain standards that other financial
institutions aren't subject to (like maintaining adequate reserves).
The main disadvantage of a federal credit union
The main disadvantage of a federal credit union is that it takes
more work to join one than a traditional bank account does. You must go through
a full application process, pay an initiation fee and meet certain membership
requirements before you can open an account at a credit union.
Federal Credit Unions offer competitive rates for loans, savings
accounts and many other financial services. They typically have higher rates
than state-chartered credit unions because they are able to pass along any
competitive advantages they have on their customers through higher rates or
lower fees.
How is a federal credit union different from a
bank?
Federal credit unions are different from banks in that they are
chartered by the federal government, and they are not owned by any one company
or person. Federal credit unions are also democratically controlled by their
members, who elect directors to oversee the operations of the credit union.
Banks can be either state-chartered or federally chartered. The
difference between these two types of banks is that a state-chartered bank must
meet certain requirements set forth by its state legislature, while a federally
chartered bank does not have to meet any such requirements.
There are other differences between state-chartered and federally
chartered banks as well. For example, a federal credit union must have its
headquarters located in either Washington D.C. or another approved city within
the country's capital region, whereas a state-chartered institution does not
have to follow this rule.
Most credit unions have lower minimum balances than many banks.
Furthermore, most credit unions offer checking accounts with no monthly fees
(eg: free ATM withdrawals). Credit unions also often offer higher APYs than
banks on savings accounts (the rate paid on deposits).
What does a credit union do with my money?
Credit unions are owned by their members, not stockholders. This
means credit unions receive no interest on member deposits and do not pay
dividends to shareholders. Instead, they use your money for the benefit of its
members.
Member service
Credit unions feel a moral obligation to serve their members. They
want to help you meet your financial needs, using only what you've deposited
into the credit union. If a member doesn't have enough funds in his or her
account to make a debit purchase — for example, if he or she hasn't paid enough
in membership fees — the credit union will often provide a loan from its own
reserves at below-market interest rates (that is, at a discount). This helps
members with unexpected expenses get back on track as soon as possible.
Credit unions also offer many member services and benefits that
larger banks don't offer — like free access to ATMs and other banking services
and discounts on loans and insurance policies, which can save you money in the
long run.
Most important thing credit unions do with your
money
The most important thing credit unions do with your money is to
make loans. They have access to capital that can be used for their members'
needs, but they don't have the profit motive that larger banks do. This means
they can typically offer loans at lower rates than larger banks. Credit unions
also offer savings accounts, CDs, IRAs, and more.
Credit unions are owned by their members; they're not owned by
shareholders. Members elect the board of directors which sets policy on behalf
of all members.
Conclusion
Under these guidelines and regulations, federal credit unions
function differently from traditional banks. In this way, they are able to
offer their customers a wide range of quality financial products and services
while fulfilling their primary purpose: to provide member-owners with access to
low-cost financial services that typically would not be available through other
types of financial institutions. The principles of opportunity and service set
the tenor for how federal credit unions operate.
The primary purpose of a federal credit union is to provide
services to members. These include checking and savings accounts, which are
subject to the same regulations as banks, but with some key differences. For
instance, credit unions tend to maintain lower loan balances than banks and can
offer a wider range of loan options.
In the end, perhaps a better comparison would be to your own bank. Federal
credit unions offer some of the same services as private banks, such as loans.
However, they exist to provide lower interest rates and a better experience
than you might get at a traditional bank.
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