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Credit Unions: Advantages in times of economic uncertainty.

in Managing Money & Credit, Protecting Your Identity
Lobby teller

In an ever-changing financial landscape, where economic uncertainties and challenges seem to part of the norm these days, having a solid financial foundation and making savvy money decisions are more crucial than ever. Importantly, banking with a financial institution that can offer unique products, educational tools/resources, and personalized service can set the stage for your financial success – in good and bad times.

Enter credit unions. They typically offer the abovementioned services – plus they are not-for-profit, translating into profits being returned to its members (and not stakeholders).

The History of Credit Unions

Credit unions emerged in the mid-19th century in response to consumers who could not access affordable credit or save money due to limited services offered by traditional banks. Local community members collaborated and pooled money to assist others in their areas. These first-ever credit unions were founded on the principles of mutual support, cooperation, and democratic decision-making, to empower individuals and improve their economic well-being.

What started as a group of community members coming together to create an institution that fostered financial self-help, mutual assistance, and community development became the foundation of credit unions worldwide! And now more than ever, credit unions are a financially strong and stable alternative to a bank.

1. Credit Unions: Owned and Operated by its Members

Unlike banks driven by profit, credit unions are owned and operated by their members, which means they have a say in how things are done. Once you establish a par (savings) account with a credit union, you become an owner of that financial institution.

Credit unions believe in the power of collaboration, working together to amplify their impact and create a safety net for individuals and communities in need. They foster a network of support that’s always available, ready to lend a hand when it comes to their members’ financial wellbeing.

Credit unions often can be advantageous during a tumultuous economy by offering members numerous benefits during financial uncertainty. As a not-for-profit financial institution, credit unions have a unique joint mission: to serve their members’ best interests.

2. Stronger Together: Fraud Prevention is a Top Priority

In times of economic uncertainty, fraudsters often emerge looking to take advantage of unsuspecting individuals. Credit unions prioritize security and employ various strategies to protect their members from fraudulent activities.

According to a study conducted by the Credit Union National Association (CUNA), credit unions often have a deep understanding of their local communities, their members, and the typical financial behaviors exhibited by individuals within those communities. This familiarity allows credit unions to quickly spot suspicious activities and take prompt action to protect their members. By closely monitoring transactions and account activities, credit unions can detect unauthorized or fraudulent behavior and implement preventive measures.

Additionally, credit unions prioritize member security through proactive fraud prevention education and awareness campaigns. They typically invest in educating their members about the latest scams and fraud tactics, empowering them to make informed decisions and stay vigilant against potential threats.

Furthermore, credit unions are also subject to regulatory oversight and compliance requirements. Regulatory bodies, such as the National Credit Union Administration (NCUA), enforce guidelines and regulations to ensure credit unions implement adequate fraud prevention measures.

3. Personalized Service: You’re More Than Just a Number

Ever feel like you’re just another account number at a big bank? Well, consider switching to a credit union! Credit unions are all about building relationships, and make it a priority to get to know you and financial needs. Furthermore, they offer personalized services tailored to their members’ unique needs.

When economic uncertainty looms, credit unions are more likely to work with you on finding solutions that suit your unique needs. Whether refinancing a loan, extending a payment deadline, or providing financial counseling, credit unions often go the extra mile to help you navigate challenging times. Their member-focused approach means you’re treated like a valued individual, not just a faceless customer.

Mike Schenk, vice president of research and policy analysis at the CUNA said, “Credit unions are likely to have more flexibility in the underwriting process. You have a unique story, and your story is much more likely to be heard at a credit union.”

And when tough times hit, you can rest assured that your credit union is looking out for your financial interests. It’s like having a trusted friend in the banking world who’s got your back no matter what. That kind of personalized support can make all the difference.

4. Unique Products with Competitive Rates and Fees

Spoiler alert: Credit unions and their members often come out on top.

Credit unions offer a full range of financial products comparable to traditional banks. However, credit unions can typically provide these services at lower costs and more favorable terms for their members.

Lower loan rates

One great reason to join a credit union is to take advantage of the more favorable interest rates they offer on loans. With the continuing Federal Reserve rate hikes, borrowing has become more expensive across the board, so now is an even more opportune time to consider one.

Because credit unions are not driven by profit and tend to have lower overhead costs, they can offer lower interest rates on auto loans, mortgages, personal loans, and credit cards. Lower rates mean you pay less interest on the life of the loan, thereby resulting in more of your hard-earned money staying in your pocket.

It’s not unheard of to find credit union loan rates that are significantly lower than the rates offered by big banks. According to a 2022 report by the Credit Union National Association (CUNA), credit unions consistently offered lower interest rates on various loan types compared to banks.

Higher savings yields

Not only are interest rates for loans typically lower at credit unions, but they generally offer higher yields on savings products such as certificates of deposit (CDs), money markets, checking and traditional savings accounts.

This helps you save more money and achieve your financial goals more effectively. A study conducted by depositaccounts.com concluded that credit unions offer better rates than banks at almost every level on nearly every deposit product. That’s pretty impressive!

>Fewer and lower fees

Credit unions often provide free checking accounts, waive ATM/maintenance fees, and offer lower or no-cost fees for services such as overdrafts, wire transfers, and account maintenance. By reducing or eliminating these fees, credit unions help their members save and keep more of their money.

In 2022, the CUNA reported that credit union members reaped the reward of over $16 billion in benefits! These benefits included increased dividends, reduced loan interest, and product and service enhancements. There’s no doubt that credit unions are there to lend a helping hand and pass their earnings on to their valued members.

And, personal finance expert Suze Orman is a big fan of credit unions. “If you are serious about making the most of your money, you should be doing your financial shopping at credit unions.

5. Financial Stability and Safety

During uncertain economic times, concerns about financial stability and the safety of your money may (understandably) arise. Credit unions are known for their proactive risk management practices and have a proven track record of maintaining stability, even during economic downturns.

One key aspect of financial stability is deposit insurance. Most credit unions are federally insured by the NCUA, which operates the National Credit Union Share Insurance Fund (NCUSIF). This insurance provides members up to $250,000 in deposit insurance per account, similar to the Federal Deposit Insurance Corporation (FDIC) coverage provided by traditional banks.

Moreover, credit unions have a strong track record of financial safety and soundness. According to the NCUA’s quarterly data report, as of the fourth quarter of 2022, the credit union industry had a net worth ratio of 10.74%, well above the minimum requirement of 7%. The net worth ratio is an indicator of a financial institution’s ability to withstand financial stress and maintain stability. Credit unions’ consistently high net worth ratios demonstrate their commitment to sound financial practices and provide reassurance to members regarding the safety of their deposits.

Lafayette Federal is Safe, Secure, and Committed to Your Financial Well-Being

At Lafayette Federal Credit Union, we have consistently adopted prudent and conservative risk management practices and have steered clear from long-term, fixed-rate investments. Our credit union is financially strong and stable, as we have been for almost 90 years.

We maintain a well-diversified portfolio of assets and our focus remains on traditional banking services to meet the needs of our membership. We also do not have any exposure to the crypto market, which has shielded us from the volatility and risks associated with that sector.

At Lafayette Federal, we treat our members as unique individuals with specific financial needs and goals. We serve, support, and empower our members by understanding their financial needs, delivering products and services to achieve their financial goals and offering solutions to assure their financial well-being.

Not a Lafayette Federal member yet? You can become a member by completing an online membership application.

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