Many people choose to go to a traditional bank to meet their savings goals. Doing business with a big bank can offer some conveniences, but oftentimes their corporate offices are states away from where you live.
In contrast, local credit unions offer a more personalized, community-oriented, less expensive alternative for those who want to save money. The Federal Deposit Insurance Corporation (FDIC) estimates the average savings account interest rate as of April 2020 as a sadly low 0.07%, which means you want to take advantage of the flexibility of a credit union to save money and earn interest in creative ways.
Additionally, credit unions have increasingly upgraded their technology offering the same or better online products and services as large national banks. Below we provide the many ways credit unions help members with their savings needs, an overview of different types of savings accounts, and tips on opening up a credit union savings account.
Credit Union Membership
The biggest difference between a traditional bank and credit union is the notion of membership. Credit unions use a membership business model that passes savings through to members, including those who join a credit union to save money.
Traditional banks are for-profit business entities that must answer to investors and shareholders. In contrast, credit unions require a membership that is based on common criteria, such as region, industry, union, or place of employment, and members own a small piece of the credit union.
Members also can get involved with governing the credit union. In turn, they serve their members by providing financial products with the lowest rates, fees, and terms they can afford. As you continue to read about the ways that credit unions help you meet your savings goals, know that these great terms are a product of the credit union business model.
Credit unions typically offer higher rates on their savings accounts, resulting in better returns each year for members who have accounts. Most credit unions have checking accounts that earn interest and high-yield savings accounts, too. High-yield savings accounts are federally insured, so they earn rates much higher than the national average. These types of accounts offer a significantly higher annual percentage yield (APY) allowing members to earn even more money to meet their savings goals.
Financial planning includes finding the right accounts for your individual situation and optimizing those accounts to help you earn the most interest as you save money. Saving money with a credit union gives you online tools, but most importantly, you also have the local access you need.
Most credit unions are active parts of their community and seek to build personal long-term relationships with their members. When you need guidance in planning and making the right choices for your financial future, your local credit union is close by to answer any questions you need.
Lower Account Requirements
When you open a savings account at a traditional bank, you often need a minimum balance for your deposit. Sometimes banks wave fees for transfers and withdrawals if you maintain a specific balance, but not always.
Whether you open regular savings, high-yield savings, a money market checking account, or any other account that earns you interest and helps you save money, you typically have a much lower account requirement.
Additionally, you can withdraw and transfer funds without restrictions as long as you are in compliance with federal laws. Federal law does limit transactions to six per month, but some banks set limits as low as two or three withdrawals per year.
Keep in mind that depositing money into your account and ATM withdrawals do not count against the federal limit. If you make an additional withdrawal, the institution will close your account. Credit unions typically place the lowest account requirements required by law to make life easier for their members.
Low Fees or No Fees
One of the ways that credit unions help their members save money when they open and maintain a savings account is by providing products with low fees or no fees. Monthly maintenance fees, as well as transaction fees, add up and prevent members from reaching their savings goals as easy.
Even when members need to make ATM withdrawals or transfers, credit unions typically do not charge fees and even sometimes refund fees from out-of-network ATMs. In some cases, you might be required to enroll in electronic statements instead of paper statements, but this is typically the go-to option for most anyway.
Types of Savings Accounts
You can choose from a variety of savings accounts to help you achieve your financial needs and goals. They include:
Money Market Savings
Many credit unions have some type of high-yield savings account, sometimes referred to as money market savings accounts. A money market savings account gives members a higher earning potential, but unlike investment accounts, they allow access to the funds.
Some credit unions have premium versions, allow those with high balances to earn more money. High-yield accounts typically require you to keep a minimum balance of $2,000 or more and reward you with a higher APY when you save more money.
The APY typically tops at $250,000 which is the amount insured by the National Credit Union Administration (NCUA), which is the equivalent of the Federal Deposit Insurance Corporation (FDIC) that protects money in banks.
A share certificate is a credit union’s equivalent to a certificate of deposit (CD). Share certificates have no risk and provide guaranteed earnings, which increase based on the amount you deposit and the length of your term.
Some credit unions provide low minimum deposits to help people save, but this option is not the best if you need access to funds. You can typically purchase share certificates with terms that range from one to five years.
When your money is in a certificate, you have to pay a penalty to withdraw it before the term ends. Yet, share certificates are great gifts, especially for kids, and they allow members to diversify their savings to achieve their ultimate goals.
Credit unions give you the tools to begin saving retirement early. Depending on your financial situation and your retirement goals, you can invest your money in a variety of individual retirement accounts (IRAs) or a Coverdell education savings account (ESA).
Each type of account offers different tax advantages. Traditional IRA contributions are not taxed until you withdraw them and Roth IRA contributions are taxed immediately, so you don’t have to worry about paying taxes later.
Like share certificates, you get penalized if you dig into your funds before the end of their term. Your local credit union can answer questions and help you decide the best way for you to save for retirement.
Holiday Savings Accounts
A holiday savings account is an example of one of several special types of savings account you find at credit unions. For some people, buying gifts during the holidays means racking up credit card debt. Holiday savings accounts allow you to put a little away for holidays out of each paycheck, so you can pay cash for your gifts and other holiday needs.
Savings Builder Accounts
Many credit unions offer some type of savings builder account that gives you the opportunity to save for specific goals. Maybe you are saving an emergency fund, a vacation, a boat, taxes, or an upcoming event.
These types of accounts can vary among credit unions, but many times you can choose whether you have access to your funds and how often you intend on making withdrawals. The longer you “lock yourself out” from your money, the lower you pay in fees.
Health Savings Accounts
Most health insurance plans have co-pays and deductibles. Although insurance protects you from major expenses, these lesser expenses can throw a wrench in your monthly household budget when injury or illness occurs.
Health savings accounts (HSAs) allow you to save pre-tax dollars to cover medical costs and the interest rates are usually much higher than a standard savings account. Additionally, your earnings are tax-free.
HSAs, however, do have eligibility requirements and you can only contribute a certain amount each year. Your member representative at your local credit union can answer any questions you have.
Using Your Checking Account to Save Money at a Credit Union
Opening a saving account at a credit union is the right choice because of all the benefits covered above, but many of those same benefits apply to checking accounts too.
When you keep your checking and savings accounts with the same institution, it makes it far easier and more convenient to manage your accounts online and in person. This is especially important in the case of an emergency or unforeseen cost that requires you to quickly transfer funds.
High-yield savings accounts and premium checking or money market checking accounts have some same advantages, especially in terms of interest rates. Many premium checking accounts have tiered interest rates, which offer the highest APY at mid-level balances.
You can play your checking and savings accounts off of one another to the extent that you can move your money around to ensure you are making the best return on your savings.
Tips for Opening up a Credit Union Savings Account
You understand the benefits of saving at a credit union, and now you are also familiar with many of the common types of savings accounts available to you. Here are a few tips to help guide you when opening a savings account at a credit union:
- Have a game plan. Your local credit union member representative can guide you towards the best solutions for your savings needs when you have an idea of your goals. When you open up your account, you should be able to provide information about what specifically you are saving for, how much you can dedicate to meeting your goal, and whether you will need access to your savings.
- Compare all options. Make sure to ask questions about the interest rates, potential fees, minimum opening requirements, and minimum balances for any savings accounts you are considering. You will find rates high and fees low, but you want to make the right choice from the start.
- Beware of tiered accounts. Savings accounts that pay different interest rates at different balance levels can be beneficial for some, but they might not be the right for your financial situation. Depending on how the interest rate changes with your balance, you might have to frequently move money around to take advantage of the highest interest rates. This requires time that isn’t worth the effort for some. High-yield savings accounts will often grow faster and don’t require extra effort.
- Don’t forget about kids’ accounts. Many parents help their children and teens open a savings account, some younger than others. Credit unions typically have special accounts for those under 12 who want to start saving and share certificates are also an option. Whether saving for a car, for college, or for a fun summer trip, it’s easier to help the children in your life save their money when they bank with the same credit union where you have your savings accounts.
Contact Us Today to Learn More About Our Savings Account Options
Many choose to automatically go to a large national bank or online bank when they want to open a savings account, but going local is better. Not only are credit unions more convenient, but you often earn more interest on your accounts, and save money on fees. Dane County Credit Union has been serving the Greater Madison area for more than 85 years. Whether looking to save for retirement, save for college, build an emergency fund, or plan a trip, we have an account to help you meet all of your savings goals. Our Member Services team would love to meet with you, help you join the credit union, discuss your financial situation, and find the best way to help you meet your savings goals. Contact Dane County Credit Union today online or at 800 593-3228.