What to know about credit unions and potential savings
In the past year, the Federal Reserve has employed several interest rate hikes in an effort to stabilize the U.S. economy. Depending on your situation and financial institution, your debt may have gotten more expensive or your savings might have grown. As rates continue to change, it’s worth exploring whether you’re still getting the best offer around.
Compared with big banks, a credit union can offer decent rates for stashing your cash or borrowing money, especially during these economic times.
Here’s what you should know about these not-forprofit cooperative financial institutions and their potential to offer big savings:
How credit unions work
Unlike banks that have shareholders to consider, credit unions return their profits to members like you.
They offer many of the same products and services that banks do, but those might go by different names. For instance, a checking account may be referred to as a “share draft account.” Credit unions may also belong to an ATM network that allows you to perform transactions beyond a specific branch.
Generally, credit unions allow you to join based on where you live, work or worship. Other avenues may include joining through a family member or making a small donation to a charitable partner organization.
“We’re required to have a field of membership, so the member coming in to open an account has to provide proof of that affiliation,” says Jim Norris, president and CEO of Skypoint Federal
Credit Union, an institution that serves counties in Maryland, Washington, D.C., and Virginia.
There’s typically a one-time membership fee to join a credit union, sometimes as low as $5, which may be used to open a savings account.
Credit union rates
Profits at credit unions are returned to members in the form of low fees, better rates on loans and higher rates on savings.
The rates for specific products will vary by credit union. For instance, in the last quarter of 2022, the national average rate for a “classic” credit card was 11.96 percent at credit unions and 13.34 percent at banks, according to data extracted by the National Credit Union Administration, or NCUA, from S&P Global Market Intelligence.
And while rates may be lower at credit unions, they can still rise when the Fed makes increases.
Federal law caps the interest rate on most loans and credit cards at federally chartered credit unions at 15 percent, although the NCUA can raise that limit temporarily “if interest-rate levels could threaten safety and soundness of individual credit unions,” according to an NCUA bulletin. For several years, the NCUA has maintained an 18 percent cap, extending it through Sept. 10, 2024, this year.
The cap is not affected by the Fed’s interest rate hikes, so the limit can be helpful for borrowers with variable interest rates that might exceed that amount. If you tend to carry a balance, it’s one way a credit union credit card can lower costs.
Credit unions may also offer higher savings rates than big banks, depending on the account. For instance, in the last quarter of 2022, the national average rate for a fiveyear certificate of deposit was 2.33 percent, compared with 1.58 percent at banks, according to the NCUA.
Other credit union perks
Profits are also returned to members through educational programs. Skypoint Federal Credit Union, for example, works with a credit counseling agency to help members struggling to pay off debts. Skypoint also offers Banzai, a financial education program for students.
Credit unions may also offer more options to save. Skypoint Federal Credit Union, for instance, offers savings accounts for different goals including holidays and special occasions.