The freelancer’s guide to credit unions

Working as a freelancer comes with many challenges. Aside from looking for new clients and stabilizing your income, you might struggle with getting loans and credits. Most banks and lending firms prefer full-time employees over freelancers. In certain situations, they could even refuse to serve you outright! Thankfully, credit unions exist to give you financial assistance whenever you need it.

Below is a guide to help freelancers learn more about credit unions. If you’re a freelancer and you’re considering alternative sources of credits and loans, then better stick around and continue reading.

What is a Credit Union?

A credit union is a non-profit cooperative that aims to provide various financial services to its members. Created, owned, and managed by its members, it focuses more on serving members than making a profit. This makes it a great alternative for freelancers to get financial services. 

How is It Different From Banks?

Although credit unions and banks offer the same financial products and services, that’s where their similarities end. For one thing, their main goals significantly differ. Banks aim to make a profit, and their primary obligation is to their shareholders. So unless you’re a shareholder, they’ll treat you as a customer should you opt to transact with them.

On the other hand, credit unions are made by their members. By opening an account with them, you’ll become a member. This entitles you to their financial services, as well as voting rights and other amazing perks.

Another difference between credit unions and banks involves their rates and fees. To better serve their participants, credit unions offer better rates for their savings accounts and lower interest rates for their loans. Additionally, they also charge lower fees.

Meanwhile, banks typically have lower interest rates for their savings and higher interest rates for their loan products. This set-up allows them to increase their profitability. Basically, the bigger the difference between their savings interest rates and loan interest rates, the higher their chances of making a profit.

Advantages of Joining Credit Unions

Since credit unions aim to serve rather than profit, you can potentially benefit from it in many ways, including:

Membership

With credit unions, you won’t just be a customer; you’ll be a member. That means you get to be a part-owner of the cooperative, entitled to dividends, voting rights, and a truckload of other benefits. Of course, freelancers need to meet a couple of qualifications to join a credit union. These could include where you live, who your clients are, and where you get freelance jobs, among others. But once you meet their requirements, you get to enjoy membership for life.

Better Rates

As mentioned above, credit unions also offer lower interest rates and better savings rates compared to banks and other lending firms. This is mainly because they’re focused on giving back to members instead of making profits. Moreover, freelancers can qualify for further discounts by setting up automatic payments. This allows you to save money when pulling out business loans in case you want to go from freelancer to agency.

Lower Fees

Additionally, credit unions require lower fees than do banks and mainstream lenders. This makes their services relatively more affordable for freelancers, from transferring money to your account to taking out loans. What’s more, they provide savings and checking accounts free of charge, and they won’t even require you to maintain a minimum balance. With this, you won’t have to worry about your account closing in case your funds run out.

Improved Customer Service

Big financial institutions like banks and lending firms tend to interact too formally (albeit professionally) with their clients, making them seem cold and distant. With credit unions, you’ll enjoy a better, more personalized member experience. Furthermore, credit union staff aim to make members happy, making them more enjoyable to deal with than employees from other providers.

Credit Union Guarantee

Credit unions are under the National Credit Union Administration, which operates similarly to the Federal Deposit Insurance Corporation (FDIC). This allows freelancers to enjoy deposit insurance in case the credit union fails. In other words, you’re guaranteed up to $250,000 should the cooperative go belly up. Of course, not every credit union belongs to the National Credit Union Administration. So when you look for a credit union, make sure they do.

Disadvantages of Joining Credit Unions

But while being a credit union member could bring countless advantages, it’s not without its downsides.

Limited Accessibility

Due to their smaller scale, credit unions generally have fewer branches and ATMs compared to banks. So if you’re the type of freelancer who prefers in-person banking, you’ll want to choose a credit union with a branch near where you work or live.

Financial Technology

All credit unions don’t necessarily enjoy the same financial technology banks and other lending firms have. This can restrict their ability to dish out premium banking services. Despite their lack of speed in rolling out new tech, their products and services are no less top-notch than those in other financial institutions.

Membership Restrictions

While membership in a credit union entitles you to various perks, there are still a few restrictions and fees that go along with it. At any rate, membership fees in credit unions cost around $5 to $25. In addition to this, the Federal Credit Union Act of 1934 requires credit unions to limit their membership. This could potentially limit your eligibility when choosing a credit union. And to top it off, some cooperatives require you to maintain a minimum deposit amount in your account. While reasonable enough, this can turn-off many prospective members.

Lower APY

Many credit unions tend to offer lower APYs (annual percentage yields) than banks. If you want a savings account that allows you to accumulate money every year, then you may need to shop around. Some credit unions offer better APYs; you’ll just need to find them.

Tips to Find the Best Credit Union

Looking for the right credit union is just as easy as finding a great bank. But if you’re still having a hard time finding the best one for you, here are a couple of useful pointers:

Ask Around

Approach any freelancer (or anybody else for that matter) you know and ask them if they know a good credit union nearby. If none of your friends, acquaintances, or colleagues know one, you can always browse the internet or yellow pages.

Shortlist Your Candidates

Next, make a list of the credit unions you like. If possible, try listing only those who operate within your vicinity. That way, you’ll have easier access to their branches or ATMs. However, you should focus more on the quality of their services, as well as on the benefits you can get as a prospective member.

Interview Your Prospects

Once you’ve finished making the shortlist, proceed with contacting them and setting appointments so you can discuss your possible membership. Use this time to check how they conduct themselves, as well as how knowledgeable they are when it comes to finances and credit. Other questions you should ask include:

• What are their rates and fees?
• How many branches and ATMs do they have? Are any of these near your area?
• How good is their customer service?
• What financial technology do they rely on?
• Can they keep your money safe?

Choose the Best One

After you’re done reviewing all your candidates, the only thing left to do is pick the best credit union among the roster. This part is entirely up to you, so make sure you choose the cooperative that can serve you best.

Get Financial Services From Credit Unions

Becoming a freelancer is a challenging but fulfilling decision. Credit unions can make your journey much easier due to the financial assistance they can provide. So if you’re having a hard time getting funding as a freelancer, consider joining one.