The Disadvantages of Credit Unions

Considering a credit union vs. bank for financial services? Before you close out your bank account in favor of a credit union's lower loan rates, higher savings rates and friendly customer service, pause and make sure you can handle the disadvantages too.

For most people, the downsides of credit unions are quite minor, but they could be dealbreakers depending on how often you travel, your reliance on mobile banking and whether or not you meet the eligibility requirements in the first place.

Credit unions tend to be highly localized. You might need to travel across town to reach a branch location – or head to a different town altogether – for services that must be conducted in-person. But for many people interested in credit unions, this represents a mere inconvenience rather than a dealbreaker.

Credit unions also don't manage many ATMs, but this doesn't mean you can't withdraw money from one. Instead, you'll need to pay a transaction fee to the bank or credit union that does manage the machine. For people who travel a lot, these fees can add up and turn into a serious disadvantage.

​Read More:​ Purpose of Credit Unions

Credit unions prefer to focus on financial services first and everything else second. This means they're a little slower at adopting new technology compared to banks. For example, when banking apps and mobile check deposits first became popular, credit unions were behind on the trend. As new technology hits the financial industry, credit union members may be the last to use it.

But many people choose credit unions because they don't waste money on "fluff," so this can also be considered an advantage. Instead of jumping on the latest tech bandwagon, credit unions typically only adopt the tools and features that become mainstream and trustworthy.

​Read More:​ What Is a Credit Union?

Whereas banks will happily open an account for virtually anyone with a bit of cash, credit unions are legally required to restrict membership to people with a "common bond," according to MyCreditUnion.gov. Credit union examples include employer-, location-, school-, faith- or association-based institutions. Others, like the University of Ohio Credit Union, also let you join if a family member meets eligibility criteria.

Restricted membership is a perk if you're already on the inside, as it allows the credit union to provide high-quality services and loans instead of spreading their resources too thin. And, due to the organizational structure of all credit unions, membership gives you voting power: you technically own part of the credit union once you're approved to join. But if you're hoping to join a particular credit union, you may be disappointed to discover it restricts membership based on factors like location, employer or student status.

​Read More:​ How to Join a Credit Union

After considering the advantages and disadvantages of credit unions, all that's left is to explore the credit options available to you and start comparing interest rates and member reviews. Use the National Credit Union Administration's research tool to browse credit unions according to your geographical location, employment sector, faith, corporation, military service, etc.

Once you've jotted down some credit unions you're eligible to join, evaluate them the same as you would a bank: compare savings rates, loan rates, loan types, typical loan requirements, etc. Read reviews about the credit union's mobile app and/or online banking platform to ensure both operate smoothly and provide the functionality you expect. Next, look up the nearest branch and ATM locations and ensure you're comfortable traveling to each. Once you've made your choice, all that's left to do is apply for membership.