When it comes to saving your money, credit union share certificates offer many benefits. But what is a share certificate, and how does it compare to a certificate of deposit (CD)?

Read on to learn more.

What Is a Credit Union Share Certificate?

A share certificate is a type of deposit account provided by credit unions. Credit unions use the word “share” to reflect a member’s ownership in the credit union. Share certificates often have a higher interest rate than a regular savings account.

When you open a share certificate, you agree to leave your funds in the account for a fixed period. For example, you can open share certificates for 13-month and 18-month terms, in addition to other options. However, if you withdraw your funds before the certificate term ends, you may be penalized.

What Is the Difference Between a Share Certificate and a CD?

While share certificates and CDs are both fixed-term deposit accounts with higher interest rates, there are a few differences between the two. Most of the difference is in the terminology used. Because credit unions are member-owned, not-for-profit financial institutions, they offer “shares” to their members and pay them dividends. Banks, which are for-profit financial institutions, offer CDs instead of share certificates. Banks pay CD holders interest instead of dividends. 

Another difference between share certificates and CDs is who insures them. For most credit unions, deposits up to $250,000 are insured by the National Credit Union Administration (NCUA). At banks, deposits up to $250,000 are insured by the Federal Deposit Insurance Corporation (FDIC). Both the NCUA and the FDIC are backed by the full faith and credit of the US government.

Benefits of a Credit Union Share Certificate

If you’re weighing your options across different savings accounts, credit union share certificates offer several unique benefits. Because credit union share certificates often offer higher interest rates than savings accounts, you can take advantage of high dividends without the risks of the stock market. Many credit unions offer share certificates at different term lengths, so you can choose one that fits your savings goals. Once your certificate matures, you have the option to reinvest your funds into another certificate so you can continue earning dividends.

Credit Union Share Certificates: Key Things to Know

A share certificate is a type of savings account offered by credit unions. Share certificates are a fixed-term deposit account that often offer higher rates than a regular savings account. Credit union share certificates pay dividends to their account holders, while CDs pay interest. Credit unions offer share certificates at a variety of term lengths, allowing you to select one that aligns with your savings goals. 

As a not-for-profit credit union, GLCU promotes the financial well-being of our members. In addition to our educational resources and outreach efforts, we also give back to our members in the form of reduced or eliminated fees, higher savings rates, and lower interest rates on loans. Check out our rates and consider opening a share certificate today.

The information in this post is for educational and informational purposes only and does not constitute investment advice. You should consult a licensed financial advisor before investing in any financial product or service.

If you’re considering opening a savings account, taking out a loan, or applying for a credit card, it’s important to understand certain financial terms. APR and APY are two terms that are often confused. Even though both APR and APY are ways of calculating interest, they apply to different things.

Keep reading to understand the differences between APR and APY.

APR and APY: What You Need to Know

APR stands for annual percentage rate. APR reflects the cost you pay each year to borrow money (including fees) expressed as a percentage. This rate refers to the amount of interest you’ll pay on loans or credit card balances.

When you take out a loan, you typically have to pay back the original amount plus interest. Your interest rate will vary depending on the type of loan you choose and your specific financial situation, including the length of the loan and your credit score, among other factors.

APR is your yearly interest rate, inclusive of any costs or fees linked to your loan. Evaluating APRs from various loans or lenders can help you find the most suitable financial option for you. For credit cards, you can avoid paying interest and fees on purchases if you pay your balance in full and on time each month.

Some credit cards offer an introductory 0% APR on balance transfers from existing cards. This can help you avoid paying interest if you know you’ll have the funds available to pay the balance down the road. Just make sure to pay the balance in full before the intro period ends to avoid paying interest on your balance transfer.

APY stands for annual percentage yield. APY is the amount of interest earned in savings accounts or other investments yearly, rather than interest paid on a loan. The higher the APY, the more interest you’ll earn on your money. APY includes compound interest while APR does not.

In simple terms, compound interest is interest you earn on top of interest as your balance grows. With compound interest, you earn money on both the initial deposit and the interest that accumulates over time. If you’re looking to save or invest, you’ll want to compare the APY and consider how often the product’s interest compounds.

APR and APY: Key Takeaways

You’ll want to aim for the lowest APR on loans to save on interest payments. Also, remember to pay your credit card balance in full and on time each month to avoid interest and fees. Having the highest possible APY will help you maximize your savings. 

As a not-for-profit credit union, GLCU promotes the financial well-being of our members. In addition to our many educational resources and outreach efforts, we also give back our profits to our members in the form of reduced or eliminated fees, higher savings rates, and lower interest rates on loans. Check out our rates and consider opening an account today.

A new year brings a new start, making it the perfect time to rethink your financial plan or create one from scratch. No matter where you may be in the financial planning process, there are simple steps you can take to create a brighter financial future for yourself.

What Are the Steps Involved in the Financial Planning Process?

Setting realistic financial goals can help you get started on the financial planning process. Consider where you are financially, and where you’d like to be. Meeting your financial goals is a journey, and your financial plan is the roadmap you’ll use to get to where you want to go.

Here’s how you can build a comprehensive financial plan that will help you meet your goals:

• Create a budget. You can craft your budget by determining how much money you have coming in and how much you have going out. List all your sources of income, and what you spend each month on various expenses.

This will help you get a better picture of where you need to adjust your spending to meet your goals. For example, if you’re spending more money than you’re bringing in, consider making some cuts.

• Make lists. When you go shopping, make a list of what you need to buy and stick to it. Consider your monthly budget, and as you add things to your cart, keep track of how much each item costs. That way, you won’t overspend when buying groceries or other essential items.
• Plan for the short- and long-term. Think about what you’d like to achieve within the next year and in the future. Saving for short-term expenses such as a vacation, a new laptop, or gifts for friends and family is generally achievable within a year.

Long-term expenses such as paying for college tuition, purchasing a new car, saving for retirement, or buying a home will require saving for more than a year, so take that into consideration when planning how much you need to save. It’s a good idea to set aside some money for emergencies, too.

• Take advantage of compound interest. One of the best ways to grow your savings is through compound interest earned in a savings account. When you put money into a savings account, it earns interest. That interest is added to your savings balance. Then, your total balance will continue to earn interest, which will increase your savings exponentially over time.

Financial Planning for Retirement

You can start planning for retirement at any age; it’s never too late or too early to set your goals. As you think about your goals, consider how much money you’ll need to retire comfortably.

Here are a few ways you can create your financial plan for retirement:

• Participate in your employer’s 401(k) plan. A 401(k) plan is a great way to grow your retirement savings, especially if your employer’s plan matches your contributions. A 401(k) plan allows you to contribute a percentage of your pre-tax salary to a tax-deferred investment account.

You can maximize your 401(k) plan by contributing the amount your employer will match, and increasing your contributions as your salary grows. However, it’s important to consider your 401(k) plan’s contribution limits, as well as the penalties for withdrawing funds early.

• Open an individual retirement account (IRA). An IRA is another option to help you save for retirement. An IRA is an investment account you can use to grow your savings. There are four types of IRAs: traditional, Roth, SIMPLE, and SEP. All four types of IRAs have tax benefits and contribution limits. To learn more about the differences between the four types of IRAs, read our blog.

Getting on the Path to Financial Success

Achieving your financial goals is a marathon, not a sprint. It takes time and patience to create a financial plan that suits you and your lifestyle.

Taking advantage of the various retirement planning accounts available to you will help you navigate saving for retirement – no matter where you are in your financial journey. Whether your financial goals are large or small, creating a financial plan will set you on the path to success.

At Great Lakes Credit Union, we’re banking for a greater good. We’re dedicated to empowering our members through financial education, community giveback efforts, innovative products and services, and competitive interest rates. Learn more about our financial education events.

If you or someone you know needs help creating a financial plan, contact us.

This blog was adapted from one of our “Great to Know!” videos. You can check out other videos in the series on our YouTube channel.

Going to college is an exciting time in any student’s life, but figuring out how to pay for college costs can be daunting. Fortunately, there are many planning resources available to help you start your college career on the right financial foot.

Read on to learn how to pay for college, and how to budget for college expenses.

How to Evaluate the Cost of College

College costs include more than just tuition. You also must consider the cost of books, supplies, room and board fees, meal plans, club fees, transportation, and any technology you’ll need for class such as a laptop or tablet. Compare the costs of specific colleges by visiting the College Scorecard website provided by the U.S. Department of Education.

You should also budget for emergency expenses. What if your car breaks down? How would you pay for an unexpected hospital bill? These are just a few costs to keep in mind.

Financial Planning for College Students

Once you’ve determined your college-related costs, start creating your college financial plan. Here are three key steps to take when developing your plan:

• Identify your goals and values. Consider what you’d like to achieve and what is most important to you. For example, if participating in a fraternity or sorority is a priority, then you’ll have to set aside money for dues and fees you may be charged. Additionally, if you’d like to live off-campus, weigh the cost against the on-campus housing options available to you.
• Assess your financial situation. What’s financially important to you today may change tomorrow. It’s important to keep an eye on your spending and assess your budget to accomplish your goals.
• Make adjustments. Your college spending plan should be a “live document.” This means that you should regularly review your budget and adjust it as your expenses change.

Budgeting Tips for College Students

Creating a college financial plan and tracking your income and expenses will set you up for success. Here’s how you can create a budget:

• Keep track of your cashflow. Look at how much money you have coming in per month, and how much money is going out. This will help determine if you need to adjust your spending plan.

• Document your expenses. Write down your expenses. Keep in mind that there are four different types of expenses, including:
  • Regular-fixed: These are recurring expenses that don’t change month-to-month. Examples include rent and car payments.
  • Regular-variable: These are recurring expenses that change month-to-month. These costs include certain utility bills (gas and electric, for example), gas for your car, and your phone bill.
  • Irregular-expected: These are infrequent fixed expenses. Examples include tuition and certain fees.
  • Irregular-unexpected: These are infrequent variable expenses. Examples include bills for emergency medical treatment and car repairs.
• Collect bills and receipts to track your expected expenses. Keep receipts when you pay your bills each month. That way, you’ll know exactly how much each bill costs and you won’t have to guess the amount.
  
• Estimate the expenses you’re unable to track. Set aside money each month to cover unexpected expenses. A good budgeting rule is to save 20% of your monthly income.
  
• Consider your habits and attitude. Examine how you spend your money, and how you feel about your monthly budget. Does your budget help you reach your goals, or is your spending holding you back?

What Is Financial Aid?

Financial aid is money you receive to pay for college. You can apply for financial aid to pay for costs not covered by either yourself or your family. Financial aid includes grants, scholarships, work study, and student loans.

Gift aid such as scholarships and grants are funds you can receive to pay for school that you don’t have to repay. Self-help aid such as student loans are funds you must repay.

You can get financial aid from a variety of sources, including:

• The federal government. Filling out the Free Application for Federal Student Aid (FAFSA) is the first step to apply for aid from the government. This includes federal student loans and the Pell Grant.
  
• Your state government. The FAFSA also allows you to apply for aid from your state government. In Illinois, this includes the MAP Grant.
• Institutions. Colleges you apply to may award scholarships or grants to fund your education.
• Outside sources. Institutions and organizations outside of your college can help fund your education through scholarships or grants.
• Private sources. You can also receive financial aid from private sources, including credit union student loans and loans from other financial institutions.

Before taking out any student loans, make sure you understand where the loan is coming from, the interest rate, whether the loan is subsidized or unsubsidized, the repayment options, and the grace period.

Meeting Your Financial and Educational Goals

While the cost of college can be intimidating, there are financing options to help make your college dreams a reality. Whether it’s through scholarships, federal financial aid, or private student loans, making informed financial decisions is a key step in achieving your educational goals. And with a college financial plan and budget in hand, you’ll be setting yourself up for success in the long run.

As a not-for-profit credit union, GLCU empowers its members through community giveback programs, financial education, volunteerism, and competitive interest rates. Learn more about our scholarships and student loans, and check out our college resource center.

This blog was adapted from a webinar hosted by the GLCU Foundation for Financial Empowerment and the Illinois Student Assistance Commission (ISAC). Check out the full webinar to learn more about this topic.

If you or someone you know needs help with college financial planning, contact us.

Expenses can add up fast during the holiday season. In fact, according to a recent survey by the National Retail Federation, consumers plan to spend an average of $875 on food, decorations, gifts, and related holiday items this year.*

To make sure you don’t get in debt in the new year, consider following these five holiday budgeting tips.  

1. Set a Spending Limit

Figure out how much you can realistically spend on everything and make a list. Then, break it down for each category, such as presents, decorations, food, holiday baking, and greeting cards. Assign a dollar amount for each group.

2. Make a Budget for Each Person and Stick to It

For most people, gift-giving is the biggest category in their holiday budget, and it’s easy get off track. Before doing any holiday shopping, plan what you’re going to buy for each person on your list. Decide on a monetary limit for each person and stick to it.

If money is a bit tight this year, consider discussing your budget with family and friends. You can draw names and share gift-buying duties with others so you don’t spread your budget so thin. Buying gifts with others such as parents and siblings can also help your budget go further.

3. Don’t Underestimate the Power of Homemade Gifts

Heartfelt gifts don’t have to be expensive. Your friends and family will enjoy a scarf you made in their favorite color, or the photo you framed from last summer. These gifts demonstrate the thought you put into creating something meaningful just for them.

4. Organize Group Volunteering Events

When you add everything up that goes into hosting the perfect party, costs can get out of control fast. Even if you do a potluck, purchasing ingredients for holiday dishes can take a toll on your wallet.

This year, suggest a get-together that gives back. Meet your friends and volunteer for an organization such as Cool Ministries Food Bank, Habitat for Humanity, Bernie’s Book Bank or other local charities. These outings are fun and can make you feel good, too.

5. Track Your Spending

Keeping track of what you’re spending as you go helps keep you within your budget. You won’t be as tempted to make impulse purchases, and you’ll feel more in control of your finances.

If you overspend this year, make a New Year’s resolution to get a fresh start in 2024 by opening up a GLCU Holiday Savings Account. It only takes $1 to open an account, and you can save money little by little all year long.

A Holiday Budget Is the Gift that Keeps on Giving

Remember: The holidays should be a joyous and happy time spent with family and friends. What people will remember is the time you enjoyed together, not the gifts you gave them. So, try not to feel pressured to overspend, and focus on what’s important. That way, you can welcome 2024 feeling merry and bright and not overwhelmed by debt.

*National Retail Federation, 2023 Holiday Spending to Reach Record Spending Levels, November 2, 2023.

A checking account and a savings account serve two different, but complementary, roles in managing your personal finances. A checking account is primarily used for daily transactions, allowing you to deposit money and make frequent withdrawals. These accounts are typically used for paying bills, making purchases, and managing everyday expenses, and are sometimes interest bearing. They are designed for ease of access to your funds, often providing check-writing privileges, debit cards, and online banking services for quick transfers and payments.

A savings account is intended for money you plan to grow over time. These accounts sometimes limit the number of transactions you can make each month, but they offer the advantage of accruing interest on your balance. This makes a savings account ideal for setting aside funds for future needs or emergencies. They serve as a tool to facilitate saving habits, allowing you to accumulate wealth gradually while providing a safety net for unforeseen expenses. It’s common to direct deposit into savings accounts, establishing a systematic saving routine. Not sure what’s right for you? Read on to learn more

Key Takeaways

• Checking and Savings Accounts Serve Different Purposes: Checking accounts are designed for frequent transactions, making them ideal for managing everyday expenses. Savings accounts, on the other hand, are intended for long-term storage of funds and usually offer interest, making them suitable for building an emergency fund or saving for future goals.
• Choosing the Right Account Depends on Your Needs: When selecting a checking or savings account, consider factors such as fees, interest rates, access to your funds, and the benefits offered by the financial institution. The right choice depends on your financial habits and goals.
• Banks and Credit Unions Offer Different Types of Checking and Savings Accounts: Traditional checking and savings accounts are not the only options. There are alternatives like online checking accounts, high-yield savings accounts, and money market accounts (MMAs) that might offer better interest rates or lower fees.
• Having Both a Checking and Savings Account Can Enhance Your Financial Flexibility: Maintaining both a checking and savings account allows you to separate everyday spending from savings, making money management easier. Moreover, if your bank or credit union is federally insured, your deposits are generally protected up to $250,000.

What is a Checking Account?

A checking account is a type of financial account that allows for numerous withdrawals and unlimited deposits. Unlike other types of accounts, it enables frequent transactions, including deposit demand via checks, debit card purchases, and direct transfers. A key characteristic of a checking account is its liquidity and accessibility, making it an ideal tool for managing daily financial activities.

Is a Checking Account a Bank Account?

Yes, a checking account is a type of bank or credit union account. It is a service provided by financial institutions like banks and credit unions that allows customers to deposit and withdraw money. Due to its function of facilitating regular transactions, many people use a checking account for their primary banking needs, making it a fundamental component of personal finance.

Benefits of a Checking Account

Checking accounts come with a variety of benefits, including:

1. Ease of Access: A checking account provides easy access to your funds, making it an ideal tool for everyday use. You can withdraw money at ATMs, write checks, make debit card purchases, and transfer funds online.
2. Direct Deposit: Most checking accounts allow you to set up direct deposit for paychecks, pensions, or government benefits. This feature not only gives you faster access to your funds but also saves time and the inconvenience of manual deposits.
3. Bill Payment: Checking accounts typically offer the functionality to pay bills directly, either through checks or online transactions. This can include utilities, mortgage payments, credit card bills, or any other regular expenses.
4. Potential for Interest or Rewards: While not as common, some checking accounts can also earn interest, similar to savings accounts. Others may offer rewards or cash back for certain types of transactions.
5. Overdraft Protection: Some banks offer overdraft protection, where in the event of a transaction that would overdraw your account, funds are automatically transferred from a linked savings account or credit line to cover the difference.

How to Choose a Checking Account

Choosing the right checking account depends on your financial habits and needs. Consider factors such as the minimum balance requirements, fees (such as monthly maintenance or ATM fees), ease of access to your money, and any additional perks offered by the financial institution. Some people may prefer a traditional brick-and-mortar bank or credit union, while others might opt for online banks or credit unions for their checking accounts.

Alternatives to Regular Checking Accounts

Alternatives to regular checking accounts include high-yield checking accounts, which often offer lower fees and higher interest/dividend rates; money market accounts, which can also offer higher interest rates but may require a higher minimum balance; and prepaid debit cards, which work like a checking account but without the need for a bank.

What is a Savings Account?

A savings account is a type of interest-bearing account offered by banks and credit unions. Unlike checking accounts, savings accounts are intended to hold the money you don’t intend to use for daily expenses. They often limit the number of transactions you can make each month but offer the advantage of accruing interest over time.

Benefits of a Savings Account

Savings accounts offer several key advantages, including:

1. Interest Earnings: One of the main benefits of a savings account is its ability to earn interest. Your money will grow over time, helping you build wealth.
2. Financial Security: A savings account is a safe place to store your money. Banks and credit unions are insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA), respectively, so your money is protected up to $250,000.
3. Direct Deposit: You can set up direct deposit into a savings account for automatic savings. This is especially helpful for individuals who struggle to save money regularly.
4. Emergency Fund: A savings account is a perfect place to keep an emergency fund. It separates these funds from your daily spending money and allows you to have quick access to funds in case of unexpected expenses.
5. Savings Goals: Savings accounts can help you reach your financial goals, whether it’s saving for a vacation, a new car, or a down payment on a house. By keeping this money separate from your checking account, it’s easier to manage and track your progress.

Can You Deposit Checks into a Savings Account?

Yes, you can deposit checks into a savings account. Most banks and credit unions allow for this. You can do this either in person, via an ATM, or through a mobile banking app if your bank offers mobile check deposit.

How to Choose a Savings Account

Choosing a savings account depends on factors such as the interest rate, minimum balance requirements, fees, and how you plan to use the account. Look for an account with a competitive interest rate and low fees. Consider online savings accounts or money market accounts (MMAs), as they often offer higher interest rates compared to traditional savings accounts.

Alternatives to Regular Savings Accounts

Alternatives to regular savings accounts include high-yield savings accounts, which offer higher interest rates; Certificates of Deposit (CDs), which also have higher interest rates but limit access to your funds for a certain period; and MMAs, which usually have higher minimum balance requirements but offer both check-writing privileges and higher interest rates.

Benefits of Having a Checking and Savings Account

Having both a checking and savings account provides financial flexibility. Your checking account can cover everyday transactions while your savings account builds interest and serves as an emergency fund or future investment. This strategy can also help manage your money, separating daily spending from savings.

Are Interest Rates Fixed on Savings and Checking Accounts?

Interest rates on checking and savings accounts are typically variable, not fixed. They can fluctuate based on economic conditions and changes in the Federal Reserve’s interest rate policies.

Will I Lose My Money in a Checking or Savings Account if My Bank or Credit Union Fails?

If your bank or credit union is federally insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Share Insurance Fund (NCUSIF), your deposits are generally protected up to $250,000, minimizing the risk of losing your money.

Should My Checking and Savings Account be at the Same Bank or Credit Union?

There’s no one-size-fits-all answer to this question. Having both accounts at the same institution can make transfers between accounts faster and easier. However, you might find that different institutions offer better rates or benefits for different types of accounts. It’s essential to shop around and choose what’s best for your needs.

How to Choose What’s Best for You

When it comes to checking vs savings accounts, the choice depends on your financial goals and habits. A checking account might be best for managing everyday expenses, while a savings account is better for building an emergency fund or saving for future goals. Remember to consider the fees, interest rates, access to your money, and the reliability of the financial institution. And always feel comfortable to ask for advice from financial advisors or banking professionals to help guide your decision.

No, opening a savings account doesn’t directly impact your credit score, but there’s more you should know. Understanding the relationship between your credit score and various financial decisions, like opening a savings account, is critical for maintaining and improving your financial well-being. This article will explore these nuances and help you better understand how a savings account may impact your credit score.

Key Takeaways

• Opening a savings account does not directly impact your credit score. Credit scores, primarily determined by FICO, focus on your borrowing and repayment behaviors, not your savings habits.
• A savings account can indirectly contribute to a healthy credit score. For instance, it can act as an emergency fund, helping you maintain consistent credit payments even during unexpected financial demands.
• A robust savings account can potentially serve as collateral for secured loans, which can enhance your credit profile by allowing you to qualify for loans with better terms.
• Regular contributions to a savings account can foster disciplined spending habits, thus reducing the risk of accruing unnecessary debt that could negatively affect your credit score.

What is a Savings Account?

A savings account is a deposit account held at a bank or credit union (called a share savings account). It provides a modest interest rate and is primarily used for saving money and earning interest. Savings accounts are considered one of the most secure forms of investment because they’re insured by the FDIC (for banks) or the NCUA (for credit unions) up to $250,000.

To open a savings account, you typically need to:

• Choose a bank or credit union: Look for an institution that offers competitive interest rates and low fees.
• Provide personal information: This typically includes your social security number, date of birth, and contact information.
• Deposit funds: Most banks require an initial deposit to open an account. The amount varies by institution. Great Lakes Credit Union requires only a $1 deposit to open a share savings account.

Credit Scores and Savings Accounts: Any Direct Link?

The short answer is no. Opening a savings account does not directly impact your credit score. Credit scores, as formulated by the Fair Isaac Corporation (commonly known as FICO) are primarily based on your borrowing and repayment behavior. They assess how you handle debt, including details about:

• Payment history: Your track record of paying off debts on time.
• Amounts owed: The total amount of debt you owe across different accounts.
• Length of credit history: How long you’ve had credit.
• Credit mix: The different types of credit you have, like credit cards, mortgages, or auto loans.
• New credit: The number of new credit accounts or inquiries.

Since a savings account doesn’t involve borrowing or repaying money, it does not factor into these considerations and therefore does not directly affect your credit score.

How Savings Accounts Can Indirectly Influence Credit Health

• While opening a savings account does not directly influence your credit score, it can have indirect effects on your overall credit health.
• Emergency fund: A savings account can act as an emergency fund, providing financial security. This buffer can help you avoid falling behind on credit payments if unexpected expenses arise, thus protecting your credit score.
• Loan collateral: In some cases, a robust savings account could be used as collateral for secured loans. This can help you qualify for loans with better terms, promoting a positive credit history.
• Discouraged overspending: Regularly depositing money into a savings account can promote disciplined spending, reducing the likelihood of accruing unnecessary debt, which could harm your credit score.

Understand Your Credit Score

In conclusion, opening a savings account does not directly affect your credit score, as credit scoring models like FICO primarily evaluate your debt management. However, maintaining a healthy savings account can indirectly improve your credit health by providing an emergency buffer, acting as collateral, and encouraging responsible spending habits. It’s an important part of a balanced financial plan, and alongside wise credit use, it can set you up for long-term financial success.

Opening a checking account can potentially affect your credit score but this is typically minimal or non-existent in most scenarios. Banks and credit unions do not generally check your credit report when you open a checking account; however, they may use a different system such as ChexSystems to verify your banking history. In certain instances, a credit union or bank will perform a credit check and understanding when this happens can help you maintain a good credit score. This article outlines how opening a checking account affects your credit score and some of the more common banking activities that my result in a credit check or lowered credit score.

Key Takeaways:

1. Checking account and credit score: While opening a checking account can potentially impact your credit score, the effect is typically minimal, with banks and credit unions often using systems like ChexSystems rather than credit reports to assess banking history.
2. Financial institution policies and hard inquiries: Some financial institutions may conduct hard credit inquiries when opening an account or applying for credit, which can temporarily lower a credit score, emphasizing the importance of understanding a bank’s policies.
3. ChexSystems and banking history: ChexSystems, used by banks and credit unions, maintains records of consumers’ banking histories and negative entries such as bounced checks or unpaid fees can impact your ability to open new accounts or gain credit approval.
4. Maintaining a good credit score: Good credit score maintenance requires a range of factors including paying bills and fees on time, promptly addressing any errors on credit reports, and avoiding frequent opening of new accounts.

When Might a Bank or Credit Union Make a Hard Inquiry?

A bank or credit union may make a hard inquiry when you’re applying for credit, such as a credit card, mortgage, or personal loan. Additionally, some bank or credit unions may do a hard pull if you opt for overdraft protection, as this can be viewed as a line of credit.

Consider Your Options Before Choosing a Bank or Credit Union to Avoid a Hard Pull Penalty

It’s always wise to consider multiple options before settling on a bank or credit union. Some financial institutions may conduct a hard pull when you open an account, particularly if you’re applying for credit or overdraft protection. A hard pull can temporarily lower your credit score, so it’s crucial to understand a bank’s policies before proceeding.

Can Using a Bank or Credit Union Decrease Your Credit Score?

Banks and credit unions themselves typically don’t report to credit bureaus unless there’s a significant issue such as an unpaid debt. However, certain activities like failing to pay overdraft fees, closing an account with a negative balance, or numerous account applications can potentially hurt your credit score.

• Failing to pay overdraft fees: Unpaid overdraft fees can be sent to a collection agency, and this collection activity is likely to be reported to the credit bureaus, damaging your credit score.
• Closing an account with a negative balance: If you close a checking account with a negative balance, the credit union could report this to credit agencies, and it may be viewed as unpaid debt, thereby reducing your credit score.
• Overdrafts and bounced checks: If you frequently overdraft your account or bounce checks, your bank or credit union may report this to ChexSystems, which doesn’t directly affect your credit score, but it can indirectly influence it if the negative information leads to unpaid debts or collections.
• Debit card and ATM abuse: Chronic misuse of your debit card or ATM transactions could lead to account closure and an adverse report to ChexSystems; while not a direct hit to your credit score, this can lead to future banking difficulties, which could indirectly impact your credit.
• Numerous account applications: Applying for many financial accounts within a short period can lead to multiple hard inquiries on your credit report, which can lower your credit score.
• Frequent loss of debit cards or checks: Consistently losing debit cards or checks could be perceived as negligence, leading to your account being flagged or closed, but while it may cause inconvenience and potential banking difficulties, it’s unlikely to directly impact your credit score.
• Unpaid negative balances: Unpaid negative balances may be reported to credit agencies as unpaid debt, which can significantly lower your credit score.

What is ChexSystems?

ChexSystems is a reporting agency that maintains records of consumers’ banking histories. Banks and credit unions use this system to determine the risk associated with potential account holders. Negative entries, such as bounced checks or unpaid account fees, stay on your ChexSystems record for five years unless the source of the information removes it sooner.

What is on Your ChexSystems Record?

Your ChexSystems record may include any unpaid fees from financial institutions, instances of check fraud, bounced checks, or any negative account balances that were not repaid. Information about overdrafts that you have not paid back could also appear on your ChexSystems record.

Don’t Co-sign

Co-signing for a loan or credit card can put your credit score at risk if the primary borrower doesn’t manage the credit responsibly. If they miss payments or default on the credit, it will negatively impact your credit score. Unless you’re willing to take on the risk, it’s generally recommended to avoid co-signing.

How Can You Maintain a Good Credit Score?

Maintaining a good credit score involves several factors: Paying all your bills and fees on time, addressing any errors on your credit report promptly, avoiding the opening of too many accounts in a short period, and responsibly managing your credit utilization.

• Maintaining a Healthy Credit Score and ChexSystems Record: Keeping both your credit score and ChexSystems record clean by managing your accounts responsibly can enhance your creditworthiness and open up opportunities for better financial products.
• Pay bills and fees on time: Making timely payments on all your bills, including loans, credit cards, and even bank and credit union fees, can help maintain a positive payment history, which is a crucial factor in calculating your credit score.
• Address errors on your report: Regularly checking your credit report for errors and addressing any inaccuracies can help ensure your credit score is an accurate reflection of your credit history.
• Avoid opening accounts too often: Opening accounts sparingly prevents excessive hard inquiries, which can lower your credit score if too many are made in a short period.

Checking Accounts Are the First Step Towards Financial Success

Having a checking account is a fundamental part of managing your finances. It allows you to safely store your money, keep track of your spending, and often it’s required to set up direct deposit for a job.

How Many Bank or Credit Union Accounts Should You Have?

The number of accounts you should have depends on your individual financial needs. However, it’s common for individuals to have at least one checking and one savings account: the checking account for managing day-to-day transactions and the savings account for accumulating funds over time. Some people also find it useful to have additional accounts for specific saving goals. Remember, the key is to manage them responsibly to avoid any fees and to maintain a good banking history.

Choosing the right financial institution can significantly impact your financial journey, and the decision often boils down to credit unions versus banks. Traditionally, credit unions tended to provide better rates and lower fees, with larger banks providing more coverage and a wider range of products. However, the differences between the two have diminished over time with co-op and shared branching, giving credit unions a larger reach; credit unions partnering with fintech and other technology providers to improve the member experience; and banks improving their rates to stay competitive.

This article discusses the intricacies of banks vs. credit unions, comparing them across various aspects such as ownership structure, product offerings, interest rates, security, and even their different loan products.

Key Takeaways:

• Banks are for-profit entities focused on maximizing shareholder returns, while credit unions operate on a not-for-profit basis, reinvesting earnings back into the organization to deliver maximum benefits to their member-owners.
• Banks and credit unions offer a similar set of core products and services consumers expect. Still, larger banks sometimes have a more comprehensive range of business, commercial, and wealth banking products. In contrast, credit unions often provide more competitive interest rates and lower fees due to their not-for-profit status.
• Both credit unions and banks provide robust security measures to protect their customers’ assets. Additionally, federal insurance covers individual deposits up to $250,000 in both types of institutions, offering similar levels of financial protection. Some credits unions are self-insured.
• Credit unions, with their community-focused mission, generally dedicate more resources to local community service and financial education programs. While banks also contribute to community services, the scale and emphasis can differ based on the bank’s size and mission.

Ownership vs. Membership

Banks are typically for-profit entities owned by shareholders who expect a return on their investments. These institutions are primarily driven by profit motives, making decisions that maximize returns for their shareholders. Their operations, ranging from interest rates offered on loans and deposits to the fees charged on services, are all designed to generate the highest profit possible.

Credit unions, on the other hand, operate on a not-for-profit basis. They are owned and controlled by their members and place emphasis on member benefits and community impact rather than generating profit. Credit unions reinvest their earnings back into the organization to offer lower fees, better interest rates, and improved services. Their ultimate goal is to deliver maximum benefit to their members, which often results in a more personalized and member-centric service experience.

Advantages of Credit Unions Over Banks

Credit unions often offer several key advantages over traditional banks. The most common is their favorable interest rates. As not-for-profit entities, credit unions typically provide higher returns on savings accounts and lower interest rates on loans and credit cards. This means you can earn more on your deposits and pay less when you borrow. And, because they are member-owned, credit unions often charge lower fees compared to banks, which can translate into significant savings over time.

Another standout advantage of credit unions is their exceptional member service. Because they are smaller and community-oriented, credit unions often provide a more personalized banking experience. Members are more than just account numbers; they’re part owners of the cooperative and have a say in operations. Credit unions are known for their emphasis on financial education and their willingness to work with members through tough times, offering flexible loan repayment options during financial hardships.

Advantages of Banks Over Credit Unions

While there are unique benefits offered by credit unions, banks have their own set of advantages that might make them a better fit for some individuals. One of the primary advantages to doing business with a large bank is their extensive geographic reach and accessibility. Banks, especially larger ones, tend to have more physical branches and ATMs spread out across various regions, including international locations. This can make accessing your funds easier and more convenient, particularly for those who frequently travel or live in multiple locations.

NCUA vs. FDIC

The National Credit Union Administration (NCUA) and the Federal Deposit Insurance Corporation (FDIC) are two governmental agencies that provide insurance to account holders in credit unions and banks, respectively. Both serve to protect consumers’ funds in case of the institution’s failure, offering peace of mind to account holders.

The NCUA, through the National Credit Union Share Insurance Fund (NCUSIF), insures member deposits in federally insured credit unions up to $250,000 per account type, per institution. Similarly, the FDIC insures depositors’ funds up to $250,000 per depositor, per insured bank, for each account ownership category. This means whether you opt for a credit union or a bank, your deposits are federally insured up to the same limit, providing a similar level of security for your money at either type of institution.

Product Offering Differences

When comparing product offerings, banks sometimes have a wider variety of services and financial products. Both banks and credit unions offer checking accounts, savings accounts, and loan options, but banks have the capacity to serve a wide range of financial needs and therefore have many variations on these consumer products. In addition, some banks offer more features like investment and wealth management services, insurance products, and treasury services for businesses. However, depending on the credit union, you may find many of these same products and features available to you.

Credit unions typically offer a more streamlined selection of products, focusing on the most common financial needs such as checking and savings accounts, credit cards, and loan products like mortgages and auto loans. Some larger credit unions may offer a wider array of products similar to those found at banks, but the selection is generally more limited. However, what credit unions may lack in product variety, they often make up for with more competitive rates and lower fees. Their technology offerings have significantly improved over the years as well, with many credit unions offering online and mobile banking capabilities.

Interest rates and Fees

As not-for-profit, member-owned institutions, credit unions often offer higher interest rates on savings products and lower rates on loan products compared to banks. The profits they make are returned to members in the form of better rates, which can lead to significant savings, especially on larger loans like mortgages or auto loans. Additionally, credit unions often charge lower fees for their services, including lower overdraft fees, minimum balance fees, and ATM fees.

Banks, being profit-driven entities, often offer lower interest rates on savings accounts and charge higher rates on loans and credit cards. The fees charged by banks can also be higher, with charges for maintaining accounts, overdrafts, and using ATMs. However, it’s worth noting that many banks offer ways to waive these fees, such as maintaining a certain minimum balance or setting up direct deposit.

Credit Union vs. Bank Mortgage

Because credit unions are member-owned and not driven by profit, they can afford to offer mortgages at lower rates and with fewer fees, potentially saving borrowers a significant amount of money over the life of the loan. Some credit unions also offer more flexibility with loan terms and down payment requirements, which can be particularly beneficial for first-time home buyers or individuals with unique financial situations. Credit unions also offer homebuyer or other financial education options for new homebuyers.

Credit Union vs. Bank Auto Loan

Credit union auto loans typically come with lower interest rates and more flexible terms than banks. This stems from their not-for-profit status and commitment to serving their members’ interests. Lower rates could mean lower monthly payments and less paid in interest over the life of the loan, making the overall cost of the car lower for credit union members.

Credit Union vs. Bank for Small Business

For small businesses banking, both banks and credit unions have their advantages. Banks, particularly larger ones, sometimes provide a broader range of services tailored to businesses, including business credit cards, merchant services, payroll services, and a wider variety of commercial loans. They may also have more resources to offer comprehensive digital banking tools and dedicated business advisors. However, credit unions may offer more competitive rates on business loans and a more personalized approach to service. They may also be more willing to work with newer businesses or those with unique needs. Larger credit unions also provide similar levels of technology and services as banks.

Credit Union Credit Cards vs. Bank Credit Cards

Credit union credit cards often offer lower interest rates and fewer fees compared to bank-issued cards, thanks to the member-centric, not-for-profit nature of credit unions. This can make credit union credit cards an attractive option for those who occasionally carry a balance. On the other hand, bank credit cards often come with a wider variety of reward programs, such as travel rewards, cash back, and points systems (though credit unions also have credit card rewards programs).

Are Credit Unions More Secure Than Banks?

When it comes to security, both credit unions and banks offer significant protection for their customers assets. Federally insured credit unions are protected by the National Credit Union Administration (NCUA), while banks are insured by the Federal Deposit Insurance Corporation (FDIC). Both agencies insure individual deposits up to $250,000, offering equal protection from institutional failure.

In terms of cybersecurity and fraud prevention, both credit unions and banks invest heavily in security measures. Ultimately, the level of security between the two can be considered largely equivalent, with the choice coming down to personal preference and specific institution practices.

Community Give Back: Credit Unions Vs. Banks

Credit unions, with their community-oriented focus, often dedicate more resources to local community service and financial education programs compared to banks. This might include sponsoring local events, providing financial literacy resources to schools, and reinvesting earnings back into the community. Some credit unions even offer programs to assist members with low incomes or those who are financially vulnerable.

While banks also participate in community service activities and offer financial education, the scale and emphasis can vary greatly depending on the bank’s size and mission. Therefore, if strong community engagement and service is a priority for you, credit unions could be a more appealing choice.

So, which is right for you?

In determining whether a credit union or a bank is right for you, it fundamentally boils down to what aspects of banking are most important to your lifestyle and financial goals. If you prioritize higher interest rates on savings, lower interest on loans, fewer fees, and a community-oriented, personalized service experience, a credit union could be an excellent fit for you. Conversely, if you value a wide array of financial products, extensive physical and digital accessibility, and potentially more advanced a large bank might better suit your needs. Understanding your personal banking needs and priorities will enable you to make an informed choice between a credit union and a bank.

Guaranteed Asset Protection (GAP) insurance and Mechanical Repair Coverage (MRC) are two types of auto insurance add-ons that provide extra protection for car owners. GAP insurance can protect against financial loss if a car is totaled or stolen, while Mechanical Repair Coverage can protect against unexpected repair costs. As with all insurance products, it’s important to read the policy terms carefully and make sure that the coverage suits your individual needs and circumstances.

Learn more about GLCU Guaranteed Asset Protection (GAP) insurance.

Learn more about GLCU Mechanical Repair Coverage (MRC)

Key Takeaways:

• GAP insurance is a specialized coverage designed to pay off the remaining balance on a car loan or lease if the vehicle is totaled or stolen, and its actual cash value is less than what’s owed.
• MRC, often equivalent to an extended warranty, covers the cost of specific mechanical repairs and part replacements, particularly useful for older vehicles prone to mechanical issues.
• Checking if whether you have GAP insurance involves reviewing your insurance policy documents or contacting your insurance company or the dealership finance department where you purchased your vehicle.
• While comprehensive and collision insurance cover vehicle damage up to its current market value, GAP insurance fills in the ‘gap’ between a vehicle’s depreciated value and the remaining loan or lease balance, providing additional financial protection.

What is GAP Insurance?

Guaranteed Asset Protection (GAP) insurance is a type of auto insurance coverage that’s designed to cover the “gap” between the actual cash value of a vehicle and the amount still owed on its financing or lease. This gap can occur when a car is totaled (or stolen and not recovered), and the insurance payout doesn’t cover the full loan amount. In this way, GAP insurance covers more than comprehensive or collision insurance.

How does GAP insurance work?

When you purchase a new car, the vehicle’s value begins to depreciate the moment you drive it off the lot. If you finance or lease the car, there’s a good chance the loan or lease amount is higher than the depreciated value of the vehicle. In the unfortunate event of an accident, standard car insurance policies generally only cover the current market value of the car, which might be considerably less than the outstanding debt. This is where GAP insurance comes into play.

Here’s how GAP insurance works: If your car is totaled or stolen, your standard insurance policy will typically pay the car’s actual cash value — the original price minus depreciation. If you owe more on your loan or lease than the car’s depreciated value, you’re left with a gap that you’re still responsible for paying. GAP insurance is designed to cover this difference.

For example, suppose you purchase a car for $25,000, and a few months later the car is totaled. The auto insurance company determines that the car’s actual cash value is $22,000, but you still owe $24,000 on your loan. GAP insurance would cover this $2,000 “gap,” ensuring that your loan is paid off. This way, you’re not left with a heft bill for a car you can no longer use.

How do I know if I have GAP insurance?

• Review your insurance policy documents. These documents, which you should have received when you initially purchased your policy, will list all the types of coverage you have, including whether you have GAP insurance. You may have bought GAP insurance from your car dealer, in which case it would be part of your lease or loan paperwork.
• Contact your insurance company. If you believe you purchased GAP insurance through your insurance company, they should be able to review your policy and confirm the presence of GAP insurance for your vehicle.
• Contact the finance department of the dealership where you purchased your car directly. They will be able to confirm whether you currently have GAP insurance. Remember to ask about the specifics of your coverage, such as the terms and conditions and the coverage limit, to ensure you fully understand your policy.

What is mechanical repair coverage (MRC)?

Mechanical Repair Coverage (MRC), also known as an extended warranty, is a policy that covers the cost of certain types of mechanical repairs and parts replacements that are not covered by a traditional auto insurance policy. MRC can be particularly beneficial for people who own older vehicles that may be more prone to mechanical issues.

The specifics of MRC policies can vary significantly. Some cover almost every type of mechanical repair, while others only cover certain components of the vehicle. The cost of the policy may depend on factors like the age of the vehicle, its mileage, and the coverage level chosen.

How does mechanical repair coverage Work?

Mechanical Repair Coverage (MRC), often known as an extended warranty, is a plan that kicks in to cover the cost of certain repairs and parts replacements once the manufacturer’s warranty has expired. Unlike regular car insurance, which primarily covers costs associated with accidents, MRC is designed to pay for mechanical breakdowns that happen over time due to wear and tear.

When a covered repair is needed, you would typically pay a deductible, and then the MRC policy would cover the remainder of the costs up to its limit. Specifics of what’s covered can vary greatly by plan, so it’s important to read the terms and conditions carefully before purchasing.

Is mechanical repair coverage worth it?

The value of Mechanical Repair Coverage (MRC) can vary based on several factors, making it more beneficial for some individuals than for others. Some factors that may contribute to purchases mechanical repair coverage include:

• The reliability of your vehicle. If you own a vehicle that’s known for its longevity and low repair costs, MRC might not be a worthwhile investment. On the other hand, if your car is known to have expensive repair costs or if it’s more prone to mechanical issues, MRC could provide valuable protection against these costs.
• The age of your vehicle. Newer vehicles are often covered by a manufacturer’s warranty, making MRC unnecessary in the early years. However, as the car ages and the original warranty expires, MRC could be helpful.
• Your financial situation. If you have the means to cover an unexpected repair bill, you may choose to forgo MRC. But if a large, unforeseen repair cost could create financial hardship, the protection offered by MRC might be worthwhile.

GAP insurance vs. Mechanical Repair Coverage Summary

Guaranteed Asset Protection (GAP) insurance and Mechanical Repair Coverage (MRC) are auto insurance add-ons that provide extra protection, with GAP insurance covering the “gap” between a vehicle’s actual cash value and the amount still owed on its financing in the event of total loss, and MRC covering certain mechanical repairs and parts replacements, particularly useful for older vehicles. The worthiness of these add-ons is dependent on individual circumstances, such as the car’s depreciation, reliability, and age, and one’s financial situation.