How Military Credit Unions Work

Whether you’re saving for college or a honeymoon, a military credit union could help you reach your goal faster than that pickle jar will. See more banking pictures.
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If your savings are divided among your pocket, your couch cushions and a pickle jar packed full of quarters, this article is for you.

Organizing your finances makes sense, whether you want to save for a down payment on a house or start socking away money for your college tuition. The question is where do you put all that money you saved (or your couch ate)? One obvious option is to deposit it in a savings account after shopping around for the highest interest rate available to you.


Tracking down the best interest rates probably isn't your idea of a good time, but soldier on, scrimpers and savers. There's yet another avenue to explore, a potentially great home for your hard-earned dollars: credit unions. Did you know about credit unions? You may not because they're not always inclined to advertise, as you can learn in How Credit Unions Work. But it's worth your time to do a little reading up, as these cooperative financial organizations may offer you better rates on mortgages, savings accounts and other financial instruments.

Don't believe us? Let's say you put $1,000 in a savings account in a bank, and your friend puts $1,000 in a credit union in September 2009. Using average U.S. bank and credit union interest rates from that September, you'd have $1,003.00, while your friend would have $1,004.31 after a year [source: NCUA]. We know that $1.31 doesn't sound like much. But it's not a bad amount for your friend to be paid just for deciding to tuck his money away in a different place than yours. Now, are you interested?

In this article, you'll learn about military credit unions specifically. Contrary to what their name implies, military credit unions aren't only for the military. There are more surprising facts about military credit unions that could help you to profit, so let's be fiscally responsible people and keep reading about the perks, drawbacks and services of these institutions.


Before we dive into military credit unions, let's review what credit unions and banks have in common: services. At both types of institutions, you can open checking or savings accounts, get a credit card, invest money, take out a mortgage or apply for a loan.

Move away from services however, and differences arise. Most strikingly, banks and credit union are organized and governed differently. Credit unions are cooperatives, while banks are corporations. To join a credit union, customers pay a small fee, buying them a place in the union. As members, they're responsible for, among other things, electing the board of directors, the credit union's decision-making body. The directors also must be members. In comparison, bank customers don't own part of the bank unless they purchase stock. In addition, stockholders and bank managers elect bank directors, and directors can be anyone considered qualified for the job [source: BOA].

Here's another key difference: Credit unions are not-for-profit organizations. When credit unions earn money on their investments, they must return the profit to members. In addition, as not-for-profit organizations, they don't pay state and federal taxes. Banks, however, are for-profit. They can keep that money or decide to distribute it among shareholders. They also pay taxes, resulting in higher operating costs. Those costs include directors' salaries. If you sit on the board of directors at a credit union, it's an unpaid gig.

Maybe because of these differences, credit unions offer slightly better rates to you, the customer. At credit unions, savings accounts earn more interest, while loans and credit card balances accrue less interest than they do at banks [source: NCUA].

On the other hand, banks admit a broader group of customers. As columnist Sandra Block jokingly writes in USA Today, at most banks, "unless you're armed, a bank employee will happily help you open an account." At credit unions, members must have a common bond. The bond can be based on, for example:

  • Where you live
  • Where you work
  • Where you study
  • Which professional or volunteer organizations you belong to

You can also qualify through family ties to a credit union member. At military credit unions, members must be affiliated with the military. We'll talk later about what "affiliated" means.

Banks and credit unions also follow different rules, being regulated and insured by different agencies. The Federal Deposit Insurance Corporation (FDIC) oversees banks, while the National Credit Union Administration (NCUA) regulates credit unions. The insurance amount and the types of accounts insured are the same for both institutions [sources: FDIC, NCUA].

Next, find out if you can join a military credit union.

Any person in the U.S. military -- the Army, Navy, Air Force, Coast Guard or Marines -- can join a military credit union. So can military members who aren't on active duty: National Guard members, reservists, veterans, retirees and students at military academies.

You don't have to work in a military uniform to join. People who work for the U.S. Department of Defense or the Department of Homeland Security can also become members.

Many military credit unions will admit members of organizations that help the military in the field, such as the American Red Cross, or businesses that contract with the military. The credit union family also extends to relatives, domestic partners, spouses, foster children, legal guardians and roommates of military members [source: PenFed].

Even if you're a civilian with no ties to the government or the military, you can belong to some military credit unions. If you join the National Military Family Association by paying its membership fee, you can open an account at Pentagon Federal Credit Union.

No matter who you are, it's not free to join a military credit union. To open a checking account or use any service, you must buy part of the union. You can do that by opening a savings account with at least $5 [sources: PenFed, NFCU].

Are you eligible? Great. On to the services that may be available to you.

By now, you may be wondering about a catch. After all, if credit unions offer slightly better rates than banks, there must be a catch. Luckily, the catch isn't limited services. Walk into a bank or a military credit union, and you can use the same services. Here are some that you might be considering:

If you're on active duty in the military, busy fighting a war somewhere, both military credit unions and banks have programs designed for you. They assume that you travel, that you can't visit the bank in person, that you don't want paper bills and bank statements and that you aren't near a mailbox or an ATM, but that you do have financial business to attend to.

The programs start with online banking, a standard service that's free for any customer. Instead of visiting the bank, you open your laptop and visit a pop-up window, where you can pay mortgages and loans, dispense money to children and pay your bills. Some credit unions are arranging it so that you can make these transactions by text message from a cell phone. You also can set up your account to automatically pay whatever financial obligations you have.

That's cash other people need from you. What about your cash? In many cities, you don't need to hunt for ATMs because you can pay with your debit card, issued free to any customer. (More on this later, too.) Often enough, though, soldiers are in cash-only regions of the world, where you can't do business with a debit card. For instance, the U.S. soldiers in the district of Baraki Barak, Afghanistan, pay bazaar merchants and day laborers in cash. The reason is not only that bazaar merchants won't take a debit card to pay for your pomegranates, but that infusing cash into the local economy is part of the soldiers' mission [source: Dao].

Credit unions and banks compete with the extras. For example, Bank of America attempts to woo customers with a military banking checking account. One Bank of America promotional program rounds the amount of each debit card purchase up to the nearest dollar and deposits the change in a savings account [source: BOA]. Navy Federal Credit Union tries to offer attractive small loans.

That's one potential perk. Read on for some more.

Joining a military credit union may not get you a free toaster, but it does come with perks.
Joining a military credit union may not get you a free toaster, but it does come with perks.
Chaloner Woods/Getty Images

OK, so many financial institutions aren't vying to give you small appliances anymore when you open an account. And those bowls full of free lollipops seem to be placed more discreetly these days. Why else might you want to join a military credit union?

For one thing, military credit unions can be safe havens for members in debt. As you undoubtedly know, if you carry a balance on your credit card, the longer you wait to pay it, the faster the debt grows under the credit card's interest rate. You can soon face overwhelming debt.

Debtors who knock on a financial institution's door with a big outstanding balance, hoping to switch to a lower-interest card, can get one of three answers. First, they can be denied. This happens if the bank considers the debtor to be a large risk. Second, the bank can offer a low-interest-rate card whose rate quickly and dramatically inflates. Third, banks may give debtors a low-interest card that stays low-interest.

Credit unions lean toward the third option [source: Lieber]. One New York Times financial columnist highlights a Pentagon Federal Credit Union card that lets you transfer your debt to a 4.99-percent-interest-rate card, as long as you pay 2.5 percent of your debt up front [sources: Lieber, Penfed]. You then have two years to clear the debt before the interest rate rises.

Military families also may stumble into financial minefields with lending stores and short-term loans. The loans are small, $100 to $500, which makes them seem manageable. They're attractive because they are same-day, whereas bank and credit-union loans take longer. But the loans are meant to be paid off with the next paycheck. Borrowers who don't do this face huge fees. The fees used to correspond to 300 percent interest rates or more but are now capped at 36 percent for the military by U.S. law [sources: Sisk, Henriques, Carey].

Military credit unions offer alternative small loans. The interest rates often fall lower than 36 percent, although we don't recommend missing a loan payment. In addition, to prevent the borrower from getting mired in interest charges, some unions require applicants to take a training course before the loan is approved and limit the number of loans per year [source: The Virginian].

For a different type of member, credit unions may offer special cash-building programs. For instance, some unions advertise very high-interest-rate savings accounts to military members with good credit histories but low incomes [source: States News Service].

The ATMs for your particular military credit union may be scarce in some locations, but that doesn’t necessarily mean you’re out of luck or stuck with fees.
The ATMs for your particular military credit union may be scarce in some locations, but that doesn’t necessarily mean you’re out of luck or stuck with fees.
© 2009 Jupiterimages Corporation

Before joining a credit union, many on-the-go people worry about hunting down the right ATM. After all, how many Citibank signs do you see in the average city, compared to signs for Navy Federal Credit Union? By signage alone, military credit unions would seem to stick you with scarce ATMs. However, signs are a bad indicator. Large credit unions usually forge networking deals with other credit unions and banks, so that many thousands of ATMs -- while marked with another institution's sign -- are available to you without fees [source: Block].

ATM scarcity still poses a valid issue, though. For instance, you'll find 4 fee-free ATMs in the Citibank network within 6 miles (9.7 kilometers) of London, England, but none in the Pentagon Federal Credit Union network within 300 miles (483 kilometers) [sources: Penfed, Citibank]. It's best to check the credit union's Web site or call to find out about ATMs.

ATMs aren't the only services that may require long-distance driving. If you like visiting the credit union in person to meet the people involved in managing your money, you may be disappointed to learn that branch locations are often only near military bases [source: Penfed]. Air Force Federal Credit Unions are near Air Force bases; Department of Veterans Affairs Federal Credit Unions are near military hospitals and so on. If you don't need to talk to a representative in person, you can, of course, use online banking or the phone.

Another factor to think about is leadership. At credit unions, the board of directors is made of elected credit union members -- in other words, you. The board sets the policies that, within the limits of the charter and NCUA rules, affect your money. At a credit union, a less experienced person may be on the board than at a bank. However, we can't say whether the experience gap makes a difference.

The last concern is size. The largest banks are much bigger than the largest credit unions, and people are inclined to think that the institution with the most members, or the one that holds the most cash is the best. The size gap doesn't seem to make a difference for your money. At Bank of America, presently the strongest U.S. bank, membership and total assets are many times higher than at Navy Federal Credit Union, the largest credit union in the world [source: BOA, Reuters, Navy Federal, DeDona]. However, the rates -- which are what help you to make or lose money -- are still slightly better at the credit union.

Keep reading for more links to help you rule your finances.

Related HowStuffWorks Articles


  • Bank of America. "Bank of America Corporation Submission of Director Nominee Candidates." 2010. (12/31/2009)
  • Bank of America. "Company Overview." Oct. 16, 2009. (12/31/2009)
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  • Citigroup, Inc. "Find Branch and ATM Location." (1/6/2010)
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  • Sisk, Richard. "Loans Strap G.I.s Thousands in Heavy Debt As 'Payday' Firms Rake It In." NY Daily News. Dec. 26, 2005. (12/30/2009)
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