Not all credit unions are available to the public, however, as most are created specifically for certain groups. These may include federal employees, educators, military, or employees who work at specific organizations. It’s important to first understand how credit unions work before applying for any type of account. Learn the differences between savings accounts at credit unions and savings accounts at banks, and the options that are available.
Credit Union Savings Account Basics
Savings accounts at credit unions work the same way as bank savings accounts. You deposit funds in the account, which is insured by a government body and earns interest in return for you letting the financial institution use the money. At a credit union, these interest payments are called dividends. The more you deposit, the more interest you accrue.
Yields
The rate of interest you earn on your savings, taking into account compounding, is called the annual percentage yield (APY). It varies depending on the credit union and other factors. Many credit unions pay higher interest rates on savings accounts than banks. Better rates are one way that credit union profits are distributed to members. But you’ll want to look at individual banks and credit unions to find the best savings account interest rates. Different types of savings accounts may have different interest rates. For example, high yield savings accounts usually have higher interest rates than regular savings accounts. However, these accounts may require a larger opening deposit or ongoing balance.
Fees
Though credit unions typically have lower fees than banks, some fees may apply. Your credit union may charge you overdraft fees or fees for using out-of-network ATMs, although many credit unions have options that allow you to be refunded for these ATM fees. This may also include monthly fees if you don’t maintain the required minimum balance on your savings account.
Minimum Balance Requirements
A minimum balance is the amount of funds that must stay deposited in the savings account. This means you have to keep a certain balance to earn dividends, or to avoid a low balance fee. For example, an account holder with a minimum balance of $100 won’t receive dividends during a period when their savings is only $90.
Deposit Insurance
Savings accounts at federally insured credit unions are protected in a similar way as savings accounts at banks. While the accounts at banks are protected by the Federal Deposit Insurance Corporation (FDIC), accounts at credit unions are protected by the National Credit Union Administration (NCUA). This insures deposits up to $250,000.
Credit Union Savings Accounts vs. Bank Savings Accounts
You’ll want to consider the differences between credit unions and banks before you open a savings account. Credit unions are nonprofit organizations. Profits go back to their members in the form of lower rates on loans and higher yields on savings accounts. Banks are for-profit, meaning they keep profits to reinvest in the company or distribute to shareholders. That being said, there are banks that offer better rates than credit unions.
How To Open a Savings Account at a Credit Union
To open a savings account at a credit union, you’ll first need to obtain a membership. Most credit unions are geared toward particular groups, such as members of a certain profession or people working for a particular organization. You’ll need to apply to become a member. Once approved, you can open a savings account online or in person at a branch. Complete the application with your information and provide the necessary documentation, which usually includes your Social Security number and a government-issued ID. Finally, you’ll probably need to make a minimum opening deposit. Credit unions consider your savings account to be your “share” of the organization, and may call it a share account.
The Bottom Line
It might make sense for you to open a savings account at a credit union, depending on your needs. Although you probably won’t qualify for membership at every credit union, there are many available to the public. Review your options and see if any of the available credit unions have a savings account that suits your needs.
