Why Credit Unions Are Better
You are an owner
If you owned a business, you would do everything you could to create and drive income to grow that business and make it stronger, right?
Well, your Credit Union is a business and you are an Owner! So, when you actively use the Credit Union’s products and services, you are investing in your own business, making it stronger for you and all of its other Member-Owners.
This section of our website is dedicated to explaining a little more about how your Credit Union works and how you, as a Member-Owner, can help promote a strong and thriving organization for all Member-Owners.
How your Credit Union works
When you become a member, you open a Primary Share Savings account with a minimum deposit of $5. This “share” is your ownership in the credit union and gives you the right to vote for the Board of Directors and also gives you access to all other Credit Union products and services, like checking accounts and loans.
As you make deposits into your savings or checking accounts, it provides the funds that are then loaned out to other Member-Owners to purchase cars, take vacations, etc. The Credit Union pays you for the use of your deposits in the form of dividends and charges interest on each loan. Simply stated, it is the difference between the dividends paid out in deposits and the interest received on loans that creates earnings for the Credit Union. Credit Union expenses are also paid from these earnings. After expenses are paid, the excess earnings are returned to you, the Member-Owner, in the form of better rates and services. While there are other ways the Credit Union can generate income, as we will discuss below, interest income from loans is the primary source of earnings.
Using your VISA Check Card helps strengthen your Credit Union
Did you know that every time you use your VISA Check (debit) Card, the Credit Union receives income? It is called “interchange income.” Merchants pay a fee to accept credit and debit cards, and a portion of that fee is returned to the financial institution that issues the card. So, by simply using your debit card for everyday purchases, you create income for the Credit Union. It’s a great way to help the Credit Union while being convenient and free for you!
“Is this debit or credit?”
All of us who use a debit card have been asked if we want to run it as a “debit” or “credit” transaction. Have you ever wondered why, if it is a “debit card”, they even give you that option? Is there a difference? The answer is yes!
When you choose “credit”, you sign for your transaction rather than entering your PIN, which can be a more secure transaction since there is no chance of someone capturing your PIN.
Credit transactions run through the VISA network, which provides the benefit of zero-liability if there is fraudulent behavior associated with your card. Debit transactions are “real-time” transactions that go directly to the Credit Union, and the VISA network zero-liability benefit does not apply. Of course, if there is fraudulent behavior on your card, your Credit Union will work diligently to help you resolve the situation!
As mentioned above, debit transactions are “real-time”, so the money comes out of your account immediately. Because credit transactions go through the network and are then sent in batches to the Credit Union, the money may take several days to come out of your account. It is always important to keep track of these transactions so you don’t overdraw your account inadvertently.
Credit transactions actually create slightly higher income for the Credit Union because the fees merchants pay for the service are higher.
e-Services…Free for you, good for the membership
While debit card usage actually creates income for the Credit Union, using e-Services can help drive higher overall earnings by reducing expenses. For instance, when you elect to receive your monthly statements electronically, it saves the Credit Union the expense of printing and mailing a paper statement. Plus, it is more secure and convenient for you since your personal financial information is easily accessible online day or night and not being sent through the mail.
Loan delinquency hurts everyone
The Credit Union cooperative business model revolves around members depositing their money so that loans can be made to others, thus generating income. It needs loan income to survive and grow. The more earnings the Credit Union has, the more it can return to its Member-Owners in the form of low loan rates, competitive dividend rates, and low or no-cost services.
When loan payments are not made on a timely basis, the Credit Union’s earnings suffer for two reasons. First, each payment consists of principal and interest. The principal portion of the payment reduces the total amount the member owes on that loan. With each payment, the principal is reduced and eventually the loan is paid off. The interest portion is the Credit Union’s income stream, so if payments are not made, the Credit Union forgoes that income for that month.
Secondly, as loans start to be delinquent, the Credit Union is required by the NCUA to set money aside for them in case they are never paid back, or are “charged off.” Even though the Credit Union technically has this money, it is not allowed to count these “reserves” toward earnings, which hurts the financial strength of the organization overall, causing loan rates to rise, credit limits to be reduced or dividend rates to shrink. As you can see, delinquent loans have a trickle effect and affect all members in some way.
If you have a loan with the Credit Union and find yourself struggling financially, we encourage you to contact us before you miss any payments. We can work with your specific situation and find a solution that helps keep your financial reputation in tact and maintains the financial health of the Credit Union.
Choosing your Credit Union to be your Primary Financial Institution
A “Primary Financial Institution”, or PFI, is the bank or credit union you regularly use and think of first when you need financial services, such as checking accounts or loans. By choosing your Credit Union to be your PFI, you strengthen it for all members. Using a Credit Union checking account and debit card drives income; financing your car, home, or other major purchases with your Credit Union and paying as planned drives income; and finally, providing the Credit Union with a solid membership base to plan decisions around ultimately makes a stronger, more efficient organization that can grow and prosper, and be in the best position possible to help its Member-Owners grow and prosper financially as well.