Credit Unions 101

What is a Credit Union?

Nearly everything you need to know about banking at a credit union – and how they can help during life’s big moments.

Credit union. For some people, that’s a foreign word. 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!

Differences Between Banks and Credit Unions

 

What is a credit union?

A credit union is a full-service financial institution that operates on a not-for-profit basis, owned by members that meet eligibility requirements (such as employer, career type, geographic region, etc.). Credit unions are known for their lower fees and rates, higher levels of customer service and focus on financial education.

 

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.
    Federally Ensured by the NCUA

    Federally Insured by the NCUA

    A common misconception is that credit unions are not federally insured. They are (by the NCUA), and once you are a credit union member, you’re a member for life – even if you move out of the credit union’s service area. Your money is insured up to $250,000 with the NCUA, just like banks are insured up to the same amount by the FDIC.

    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, worship or volunteer in one of the 22 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

     

    Typical Credit Union Services

     

    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
     

    READY TO GET STARTED?

    Money Management Tips and Savings Strategies for Every Budget and Age

    In this guide, we’ll explain how to create a household budget, why you need an emergency fund and how to live frugally at any age.

     

    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:

    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
     

    What is a SMART goal?

    A SMART goal is Specific, Measurable, Achievable, Realistic and Time-bound. An example of a financial SMART goal would be saving $20,000 for a mortgage down payment in three years. It includes a specific amount, a time frame and it’s something you can easily measure. Its realism depends on your income level and monthly expenses.

     
    Banking Technology Features

    Banking Technology & Features

    Technology has made personal banking easier and more versatile than ever before. Some features to look for at your credit union include:

    • Robust online banking features, including online transfers, electronic (paperless) statements and online bill pay.
    • A mobile app that allows you to make payments, deposit checks remotely and access financial information 24 hours a day.
    • P2P payments, so you can transfer money to other people directly from your bank.

    It’s possible to find a credit union that offers all the technology you need – and ultimately, it’s not a good idea to settle for a second-rate solution.

    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:

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

     

    READY TO GET STARTED?

    The Ultimate Guide to Taking Charge of Your Credit Card

    In this guide, you’ll learn everything you need to know about credit cards, including how they work, why you should have one, how to apply and how to use your card responsibly.

     

    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.

    Applying for an Auto Loan

    Applying for an Auto Loan at a Credit Union

    We love our cars in Florida and most of us have taken out an auto loan to pay for them. However, all auto loans are not created equal. Here are some pointers to help you choose the most advantageous (and affordable) auto loan:

    • Get your credit in order before you apply for a car loan.
    • Figure out how much you can afford to spend on loan payments.
    • Shop around and consider a credit union car loan for the best rates and service.
    • Get pre-approved to avoid overspending or getting roped into an expensive dealership loan.
    • Get the shortest loan term you can afford to save money on interest.

    If you have an existing car loan, you may also want to consider the benefits of benefits of refinancing an auto loan to get a more favorable interest rate.

    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 homebuying process, whether you’re a first-time buyer or refinancing a jumbo loan.

     

    READY TO GET STARTED?

    The Real Cost Guide to Buying a Home in 2020

    In this guide, you’ll learn everything you need to know about the true costs associated with buying a home this year.

     

    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.
     

    What’s the best way to save for retirement?

    There’s more than one way to save and invest for retirement. For many Americans, the easiest option is contributing to an employer-sponsored 401(k). Some employers offer matching contributions, which means that if you contribute a percentage of your salary to your 401(k), they’ll match it.

     

    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

     

    Credit Union Essentials for Life's Big Moments

     

    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.

    Moving to a New Place

    Moving to a New Place

    It’s easy to overlook things during a move, whether it’s falling short on supplies or not planning properly. The key is taking an organized approach. We suggest using our moving and packing checklist to help you get through your move with a minimum of stress and anxiety.

    Moving to a new city or state comes with some financial considerations that don’t apply to local moves, including changes in insurance, taxes and more. You can read more about the financial considerations you should have when moving to a new city or state or moving tips when moving out on your own for the first time.

    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.

     

    READY TO GET STARTED?

    The Step-by-Step Guide to Relocating and Starting a New Job

    In this guide, we’ll lay out the steps and financial considerations of moving to a new city and starting a new job.

     

    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.

     

    Should we combine finances or keep them separate in marriage?

    One of the biggest questions for newly married couples is figuring out whether to combine their finances or keep them separate. There are pros and cons to both options, although many married couples find there are financial advantages to combining their money.

     

    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

    Planning for Retirement

    Planning for Retirement

    The first thing to know is that it’s never too early to start investing for retirement. It can be difficult to figure out the best strategy, but we can help. Start by reading about the best retirement strategies for young people, including when and how to take risks with your money.

    If you are saving for retirement, make sure to learn about the retirement savings contribution tax credit. Qualified taxpayers can get a credit worth as much as 50% of their Adjusted Gross Income. This is a tax credit designed to help low and middle-income people save for retirement.

    Finally, if you’re getting close to retirement or want to figure out how much you’ll need to save for retirement, our retirement expense and budget worksheet can help you crunch the numbers and prepare for a relaxing and stress-free retirement.

    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.