Over the past year, the Federal Reserve has raised several interest rates in an effort to stabilize the US economy. Depending on your situation and financial institution, your debt may have become more expensive or your savings may have increased. As rates change, it’s worth exploring if you’re still getting the best offer. Compared to big banks, credit unions can offer better rates for storing your cash or borrowing money, especially in these economic times. “For people looking for loans, they can often find credit unions with lower rates because credit unions are willing to spend some of their profits on lower rates,” says Andrew Leventis, chief economist at the National Credit Union Administration. , or NCUA. “That’s one way, traditionally, credit unions have helped their members, especially at a time when you have rising rates and more urgency to get the best deal.” Here’s what you should know about these not-for-profit cooperative financial institutions and their potential to offer big savings. plus: Amid bank turmoil, concerns grow about credit drying up for homebuilders – and homebuyersHow Credit Unions Work Unlike banks that consider shareholders, credit unions return their profits to members like you. They offer the same products and services that banks do, but may go by different names. For instance, a checking account is known as a “share draft account”. Credit unions may also belong to an ATM network that allows you to make transactions outside of a particular branch. Generally, credit unions allow you to join based on where you live, work or worship. Other ways may include joining through a family member or making a small donation to a charitable partner organization. “We have to have a membership field, so a 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 organization that serves counties in Maryland. , Washington, DC, and Virginia. There is usually a one-time membership fee to join a credit union, sometimes as little as $5, which can be used to open a savings account. Read: Are your deposits safe? Where Should You Put Your Cash Amid Banking Fears? Financial advisors provide tough love.How credit union rates compare Profits in credit unions are returned to members in the form of lower fees, better rates on loans and higher rates on savings. Rates for specific products will vary by credit union. For example, in the last quarter of 2022, the national average rate for “classic” credit cards was 11.96% at credit unions and 13.34% at banks, according to data extracted from S&P Global Market Intelligence databases by NCUA, a provider of financial information services. And while rates may be low at credit unions, they can still rise when the Fed raises. At SkyPoint Federal Credit Union, rates automatically adjust within a month based on the Fed rate, Norris says, but there are limits. Federal law caps interest rates on most loans and credit cards at federally chartered credit unions at 15%, although NCUA can temporarily raise that limit “if interest-rate levels threaten the safety and soundness of individual credit unions,” NCUA said. For several years, the NCUA has maintained the 18% cap, extending it this year to September 10, 2024, according to the Bulletin. The cap is not affected by the Fed’s interest rate hikes, so the cap can be helpful for borrowers with variable interest rates that may exceed that amount. If you tend to carry a balance, that’s one way a credit union can lower credit card costs. see: The Silicon Valley Bank fallout and banking sector concerns may prompt credit-card issuers to tighten lending standards, credit unions may also offer higher savings rates than big banks on a per-account basis. For instance, in the last quarter of 2022, the national average rate for a five-year certificate of deposit was 2.33%, compared to 1.58% at banks, according to the same data set extracted by NCUA. You’re likely to get higher savings rates at an online bank, but credit union rates make it easier to keep an account under one roof, if that’s your preference. to read: As interest rates continue to climb, here’s what’s in store for credit cards this yearOther Credit Union Benefits 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 debt. SkyPoint also offers a financial education program, Banzai, for students. Texas-based credit union member Jayah Kai-Samba has also seen many of the programs offered at her institution. “They do a good job of educating their customers, so they always offer webinars or in-person sessions to train on financial education,” he says. Credit unions may also offer more options for saving. SkyPoint Federal Credit Union, for example, offers savings accounts for a variety of goals, including holidays and special occasions. Kai-Samba uses similar options at their credit union to save for specific goals like vacations, home expenses or vacations. It has automatic payments set up from every paycheck to every account. “I can break it down, and it clearly shows how I’m progressing in each of those separate accounts,” says Kai-Samba. More from NerdWallet Melissa Lambrena writes for NerdWallet. Email: mlambarena@nerdwallet.com. Twitter: @LissaLambarena.
