What is a Credit Union?

Credit union. For some people, that’s a foreign concept. If you’ve only ever had accounts at huge nationwide banks, you might not know what a credit union is. But there are a lot of benefits to banking with a credit union.

We’re Addition Financial Credit Union, and we believe in providing our members with the knowledge and tools they need to be financially secure and independent. We’ve put together this primer on credit unions to help you understand the differences between credit unions and banks, and the benefits of choosing a credit union. Take a seat and get ready to learn everything you need to know about membership at a credit union!

It’s always a good idea to begin with the basics: What is a credit union?

A credit union is a financial institution that operates on a not-for-profit basis. That puts credit unions in direct opposition to banks. Banks are for-profit corporations that are governed by officers and a board of directors, who ultimately answer to shareholders.

Credit unions do not have shareholders. In fact, they’re owned by their members. People who have accounts at credit unions aren’t just customers – they’re part owners of the credit union itself.

That’s a difference that’s obvious in the way credit unions do business. Because they’re driven by profits, banks often charge high fees and interest rates. They provide minimal services and ultimately, their first concern is making money for their shareholders.

By contrast, credit unions are there to service their members. They often have lower fees and lower interest rates than banks do. They also work closely with their members to help them achieve their financial goals. They’re often willing to help members establish or rebuild their credit.

And this is also a good time to point out that credit unions typically have the same level and depth of services as a bank – we offer checking and savings accounts, loans of all types and even business services for local organizations. We’ll talk more about these later.

There are significant benefits to choosing a credit union instead of a bank:

• Credit unions often have lower fees and interest rates than banks.
• Credit union membership comes with services you won’t get at a bank.
• Credit unions are more likely to work with their members than banks, including those with less-than-ideal credit scores.
• Credit unions prioritize customer service and financial education.
• Some credit union memberships come with special perks, such as discounted tickets to local events.

In summary, here's a quick run-down of the biggest differences between banks and credit unions:

• Credit unions often have lower fees and interest rates than banks.
• Credit union membership comes with services you won’t get at a bank.
• Credit unions are more likely to work with their members than banks, including those with less-than-ideal credit scores.
• Credit unions prioritize customer service and financial education.
• Some credit union memberships come with special perks, such as discounted tickets to local events.
  

How to Evaluate Financial Institutions

At Addition Financial, we value our members and for obvious reasons, we believe that credit unions are better than banks. Choosing a financial institution is a decision that can impact your life at every level. When you’re evaluating financial institutions, you should:

• Interview the financial institution, asking questions about fees, services, customer care and anything else that concerns you. Pay attention to both how they treat your questions and how they answer them. It will tell you a lot.
• Consider the services and credit union features that are most important to you, including mobile banking and financial mentorship.
• Read reviews online, focusing on the most recent reviews first.
• Ask for recommendations from friends, family, coworkers and neighbors.
• Review the account fees and make sure you understand them.
  

Steps to Switching Financial Institutions

If you plan on switching to a credit union, it’s important to handle it properly to minimize mistakes and avoid problems. Here are some pointers:

1. Review the membership requirements. All credit unions service a specific field of membership. That means you must meet eligibility requirements in order to join. At Addition Financial, you must live, work, attend school, or worship in one of the 24 Central Florida counties we service.
2. Open your new credit union account before you close your old account.
   Set up a link between your old account and your new account. (You will need to do an ACH or wire transfer to move your money between financial institutions.)
3. Review recurring and automatic payments for your old account and switch them to your new account. (Best option: review your bank statement to find accounts and go through them one by one.)
4. Change your direct deposit from work to your new credit union account.
5. Monitor your old account and correct any issues as they arise.

When you are sure that you no longer need your old account, close it and transfer any remaining balance to your new account.

Download Now: The Definitive Checklist for Choosing and Switching Financial Institutions

Credit unions offer a wide array of services to their members. Unlike banks, credit unions prioritize financial education, money management and working with their members to help them build credit and achieve their financial goals.

Financial Education

The biggest obstacle to achieving your financial goals is not understanding finance basics. Credit unions typically offer their members educational tools and services that banks don’t. They may include:

• A library of blog posts about relevant money management topics
• Free in-depth guides to explain topics such as credit cards, mortgages and auto loans
• Online tools, including calculators to help you budget, pay down credit card debt or buy a home
• In-person guidance with credit union employees and financial advisors

The financial education available at Addition Financial covers many topics, which we believe are helpful to our members at every stage of life.

Budgeting / Saving Help

There are a lot of budgeting myths out there. For example, a lot of people think of “budget” as a negative word – something that applies only when money is tight. The truth is that it’s always a good idea to have a budget. It’s the best way to ensure you don’t overspend, work toward your saving and retirement goals and keep yourself financially healthy.

How to Make a Budget

Making a budget isn’t difficult but it requires critical thinking and planning.

To make a budget, you’ll need:

• Your net monthly pay
• Pay from other sources, such as child support or alimony
• A detailed list of your expenses including:
  • Housing
  • Utilities
  • Taxes
  • Groceries
  • Transportation
  • Health care
  • Personal items
  • Entertainment

Tips for Saving Money

Saving money is possible on any budget, but it’s helpful to have some tips on the best ways to save. We suggest:

• Paying yourself first by creating a line item for savings in your budget.
• Cutting expenses by reusing, repurposing or selling old items.
• Rounding up your purchases and putting the difference in a savings or investment account.
• Creating an emergency fund with six months’ worth of expenses.
• Making saving automatic – when it becomes a habit, you’re more likely to save regularly.

Keep in mind that one of the biggest savings myths encourages people to make small changes, such as bringing coffee from home instead of buying it. The best way to save large amounts is to make top-down spending changes. Buying a less expensive house or car can save you thousands more than cutting back on lattes.

Setting Financial Goals

Everybody should have financial goals. It’s important to have both short-term and long-term goals. Here are some examples of short-term financial goals:

• Create an emergency fund
• Save for a down payment on a home
• Pay down credit card debt
• Start investing

Long-term financial goals require more planning and patience than short-term goals. Here are some examples:

• Paying for your child’s college education without loans
• Buying your dream home
• Retiring by the time you’re 50
  

Print Now: SMART Financial Goal Setting Worksheet

Checking & Savings Accounts

When you open a new checking or savings account, it’s your responsibility to make sure you understand the account and how it works before you make a change. When you look for a new checking account, you should:

• Check for fees, overdraft charges and minimum balances
• Evaluate features offered by the financial institution, including online and mobile banking, digital wallets and eStatements.
• Keep your old account open until you’re sure you no longer need it.
• Move all automated payments to your new account.

With savings accounts, the most important feature is the interest rate. While savings accounts don’t offer the potential of exponential growth, they do provide a safe place to keep your money.

How to Set Up a New Bank Account

When you set up a new account, follow these steps:

1. Review your account options and choose the one that meets your needs.
2. Visit the bank or credit union to present your ID and other necessary information.
3. Complete the account paperwork and sign on the dotted line.
4. Make an initial deposit to open the account. Some financial institutions have minimum deposit requirements, so make sure to ask before you open an account.
5. Set up direct deposit with your employer.
6. Create automatic payments.

Your new financial institution should provide you with a debit card and printed checks. It may take time to get your permanent card, but they should give you a temporary one in the meantime.

Tips to be Safe With a Debit Card

Debit cards are useful, but they are not as secure as credit cards. Here are some things to do to keep your debit card safe:

• Don’t share your PIN with anyone.
• Use ATMs at banks and avoid those in public places.
• Be cautious when using your debit card online.
• Never use your debit card on an unsecured Wi-Fi network.
• Consider using a mobile wallet to encrypt your debit card information.
• Review your bank statement regularly and report suspicious activity.
• File a police report if necessary.

The main difference between buying with a credit card and a debit card is that, with a credit card, the maximum you can lose due to fraudulent activity is $50. Because your debit card is linked directly to your bank account, the possibility exists that you could lose far more than that – and be forced to wait for compensation.

Credit Cards & Loans

Credit cards and loans are often misunderstood and even maligned. There’s a tendency to think of all debt as bad debt, but believing that myth can make it difficult to manage your money and prepare for the future

Credit Cards

Credit cards are everywhere and most of us use them. There’s no question that some people misuse credit cards, accumulating crippling debt. However, used properly and responsibly, credit cards can be useful financial tools. The keys to managing your credit cards are:

• Choosing the right credit card for your needs. That means shopping for competitive interest rates, choosing a card that earns you rewards or cash back and reading the fine print to ensure you understand what you’re getting.
• Consider a credit union credit card instead of a bank credit card.
• Be cautious about credit limit increases unless you’re sure you can handle them.
• Make prompt payments to keep your credit score high.
• If you can, pay your balance every month.
• If you accumulate debt, pay it down as quickly as possible.
• Educate yourself about credit card scams to keep your card safe.

Credit cards can be useful, but it’s your responsibility to understand how to use them appropriately to help you reach your financial goals.

Personal Loans

Personal loans may be taken out for many reasons: to consolidate debt, to pay off bills or to prepare for the holidays. Before you decide to take out a personal loan, here are some things you should know:

• Don’t borrow more than you need to borrow. While there’s nothing wrong with taking out a personal loan, be realistic.
• Shop around for interest rates. FICO considers all inquiries of the same kind within a 30-day period to be one inquiry, which means it won’t hurt you to fill out multiple loan applications.
• Calculate your payment to make sure you can afford to repay the loan. 
  Credit union loans often come with more favorable terms than personal loans from banks.
• Read the loan agreement completely before signing – and ask questions if you don’t understand what you’re signing.

Personal loans can be a useful money management tool provided you do your research before signing on the dotted line.

Download Now: The Simple Auto Loan Refinancing Guide for 2020

Home Loans

For most of us, buying a home is the biggest purchase we’ll ever make. Since the process can be overwhelming for homebuyers – and many first-time buyers believe in persistent mortgage myths – it’s essential to educate yourself about mortgages before you apply for one. Here are some quick essential tips:

• The size of your down payment will impact your mortgage interest rate. You should save for a down payment and also, educate yourself about down payment assistance programs for first-time homebuyers.
• Make sure you can afford to buy a home. There are many costs that first-time buyers don’t know about and it’s your job to learn about them before you buy.
• Get pre-qualified or pre-approved for a mortgage before you shop to make yourself more attractive to sellers.
• Prepare for the mortgage underwriting process to maximize your chances of approval.
• Educate yourself about mortgage amortization strategies and consider a shorter term if you can afford one.
• Consider a credit union mortgage instead of a bank mortgage.
• Work with an experienced title company.
• If you already have a mortgage, consider the benefits of refinancing your mortgage to get a lower interest rate.
• If you’re remodeling your home, consider the pros and cons of home equity lines of credit and second mortgages.

It’s a big decision to buy a home. At Addition Financial, we offer competitive mortgage rates and refinancing rates – and the guidance you need to navigate the home buying process, whether you’re a first-time buyer or refinancing a jumbo loan.

Investment & Retirement Accounts

The topic of retirement is one that should be at the top of everyone’s list of financial concerns. However, many Americans have minimal retirement savings and are unlikely to be able to retire at all.

Our take on retirement is that it’s never too early to start. Even young people who just graduated from college should be contributing to an employer-sponsored plan if they can, and opening a personal investment and retirement account if they don’t have an employer plan.

Here are some pointers to help you get your retirement savings and investments on track:

• The best retirement savings plan is one that starts as early as possible – preferably while you’re still in your 20s.
• The key to accumulating enough money to retire is focusing on compound interest, which means using the 120 rule (subtract your age from 120 to determine what percentage of your investments should be in the stock market) to invest aggressively.
• Review your assets regularly and revisit your asset allocation as needed. You shouldn’t have more than 10% of your savings in any one investment.
  

If you have a 401(k), you should:

• Contribute the maximum amount allowed
• Take advantage of employer matching contributions
• Review your assets regularly

People who don’t have a 401(k) – for example, those who are self-employed – may decide to open an IRA instead. There are two main types of IRAs – traditional IRAs and Roth IRAs. The key differences are:

• Contributions to traditional IRAs occur before you pay taxes, while Roth IRA contributions happen after taxes.
• There are income limits for Roth IRAs: single earners must earn $124,000 or less to contribute the maximum, while married earners must earn $196,000 or less (combined); find the full rules for 2020 here.
• The maximum age for contributing to a traditional IRA is 70 ½ while there is no maximum for a Roth IRA. You must be earning income to contribute to a Roth IRA.
• Withdrawals from Roth IRAs are not taxed; withdrawals from traditional IRAs are.

Whatever age you are now, you should take retirement saving seriously. Young people can afford to invest heavily in stocks using the 120 rule. Older people may want to shift their assets into less risky investments as they near retirement age.

After you have retired, you should still think about asset allocation as an ongoing task. There are various strategies you can use – and it’s important to take your age, health, expenses and risk tolerance into consideration.

Download Now: Expert Strategies for Setting and Sticking to Your Retirement Investing Goals

Many of life’s biggest moments require financial changes. At Addition Financial, we’ve built an extensive library of resources that anyone can access at any time. Here are some of the ways credit unions can help during life’s big moments and our related resources for each topic.

Graduating School

Graduating from high school or college is a big step. It’s important to do what you can to get your finances in order and minimize your debt.

One thing to consider is refinancing your student loans. Consolidating loans at a lower interest rate can help reduce your payments and allow you to pay off your loans more quickly.

If you’re going to graduate school, don’t forget to apply for scholarships. Many students know about undergraduate scholarships but don’t realize there’s help available for grad students too.

Changing Jobs

Whether you’re starting a new job or switching careers, it’s helpful to have resources you can call on.

People who are just starting out in a new job or career may be unsure how to make a great first impression. We have suggestions and recommendations for you, including tips on how to impress your boss and coworkers when starting a new job.

Switching careers may be the right choice, but it can also be a tricky one. The key is to know what the potential pitfalls are and avoid them. Check out our guide to changing careers.

Getting Married

There’s no question that getting married involves financial stress. Money problems can affect the happiness of any marriage if you don’t learn how to deal with them.

It’s also a good idea to know what the most common money problems in marriage are. A lot of couples are surprised by how much strife financial disagreements can cause.

Starting a Family

Planning to start a family? It’s a big decision and one that can have a huge impact on your family’s finances.

Before you start a family, we suggest brushing up on the financial aspects of having a baby. The key is having financial protections in place to ensure that even if your income changes, you’ll have the money you need for your family.

One of the best things you can do for your family is to open and contribute to a child savings account. The money you put away when your child is young can help to pay for college or whatever goals they hope to reach in life.

Buying a Home

Buying a home involves large sums of money and a lot of steps that first-time homebuyers don’t know how to navigate.

It’s a good idea to educate yourself about what to expect during the mortgage application process. Some people are taken aback by how long it can take – and how expensive it can be. Read our step-by-step explanation of  the mortgage process.

There are some real advantages to getting a credit union mortgage instead of a bank mortgage, including lower interest rates and personalized customer service to help you throughout the term of your mortgage.

Once you buy a home, you will need homeowners insurance to protect you and your house. We’ve put together this homeowners insurance cost guide to help you save on your premiums.

Download Now: The First-Time Homebuyer’s Guide to Mortgages

At Addition Financial, we know that credit unions are uniquely positioned to help members achieve financial security and meet life’s big moments. We believe that it’s our responsibility to provide our members with the resources and guidance they need to achieve their financial goals. Learn about the benefits of membership at Addition Financial here.