How Military Credit Unions Work

Toasters, Lollipops and Other Military Credit Union Perks

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.
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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].