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The Short Answer

Are Credit Unions a Safe Way to Earn a Higher Yield?

These financial institutions offer protections equivalent to those of banks, but there may be drawbacks to making a switch.

Question: I'm not earning anything via my checking and savings accounts at my bank. I've been reading about how I may be able to earn a higher yield on my money in a credit union. But how can credit unions offer higher yields, and is my money as safe in a credit union as it is in the bank?

Answer: Credit unions are nonprofit financial institutions owned and controlled by their members. This is in contrast with traditional banks and other financial institutions, which are designed to maximize profits for their shareholders.

The beneficial side effect of a credit union's ownership structure is that the institution doesn't have to deliver a slice of profits to shareholders. That, in turn, can enable credit unions to pay higher interest rates on deposits than is the case with for-profit financial institutions, and they may also be able to loan money and offer credit cards at more attractive rates than competing for-profit firms. The fact that credit unions typically conduct no marketing also helps them deliver attractive rates to consumers. Making direct comparisons can be tricky, but short-term savings vehicles held at a credit union may yield as much as 0.25% or 0.50% than the same investment type held in a bank.

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