Credit Unions 101 – Facts, Safety, Structure

Nov 5th, 2014     Credit Unions

Credit unions are financial institutions, which are owned and managed by its customers (members) to provide financial services to its members. Credit unions provide products and services similar to banks; however banks and credit unions cannot be considered as same. Credit unions are usually formed by a group of members with strong connections among them. When the members have a common bond and probably belong to the same region with similar financial needs and ideas, they are more likely to form a credit union. As credit unions have branch operations and deals with finances, they are operated by staff similar to banks.

Products of Credit Unions

  • Bank account
  • Savings and deposit account
  • Joint accounts
  • Credit Cards
  • Individual Retirement Accounts (IRA’s)
  • Trustee Revocable accounts
  • Trustee Irrevocable accounts
  • Money Market accounts
  • Money Market funds
  • Auto Loans, Personal loans and Student loans
  • Mortgage loans
  • Safe Deposits

We can see that credit unions are not just places where customers can deposit funds and take loans, but they also provide different products that are similar to that of banks. However, not every credit union might have all the products mentioned above. As most credit union choose their products based on the needs of its customers (members), backed up by its availability, the products vary between different credit unions.

Services of Credit Unions

Based on the products the credit unions provide services to its customers. Check books, direct debits, standing orders, internet banking, branch facilities, ATM access, debit card, electronic payments, credit union service centers are few of the services that credit unions provide.

Management of Credit Union

Credit unions are managed by its customers who are also its members. The higher management is operated by the board of directors in credit unions. The boards of directors are mostly appointed by elections, wherein the customers vote for member who are interested to manage and operate the credit union. Important decisions are taken by the higher management in credit unions.

Customers are owners of credit unions

Can Credit Unions Compete with Banks?

Yes, Credit Unions can compete with banks. Credit unions have products and services that are similar to banking. Hence it’s natural for customers to have a look at both the options before taking up accounts. If customers find credit union’s features and offerings interesting, then they can surely opt for credit unions instead of banking.

Some credit unions have attractive features, wherein customers do not require huge funds to open an account. They may just require to have a minimum balance such as $5 to $10 in some cases.

At the end September 2012 reports showed that nationwide credit unions and banks were almost equal in number. They were 7030 number of credit unions with an aggregate of $1 trillion in assets and 6170 number of banks with an aggregate of $13 trillion in assets.

Since 15 years banks and credit unions have experience similar trends. Banks have decreased by 30 % and credit unions decreased by 36%. While the total number of assets for banks increased by 140% and total assets for credit unions increased by 160%.

Are Credit Union Deposits Safe?

Yes credit unions are safe, most of the credit unions deposits are insured by NCUSIF (National Credit Union Share Insurance Fund). These credit unions are regulated by NCUA (federal organization) and thus this insurance is backed up by the government. Some credit unions deposits have private insurance instead of NCUA. Apart from the deposit insurance, there would be other safety measures taken by the members of the credit union to ensure smooth and secure operations.

Difference between Credit Unions and Banks

Although banks and credit unions look similar, following are some of the basic differences which set them apart –

  1. Credit unions are owned and managed by its customers, whereas banks are owned by shareholders which can be individuals, companies and government. Banks are managed by the bank management.
  2. In credit unions the customer and the owners are the same, whereas in banks customers are customers.
  3. Federally insured credit unions deposits are insured by NCUSIF and banks are insured by FDIC – both are government entities.
  4. Credit unions have credit union service centers which are part of a network, if a credit union is listed under this network then customers can use any branch of credit union service center, whereas banks don’t have such feature.
  5. Customers can participate and take business decisions in credit unions whereas in banks customers cannot do the same.
  6. Banks usually provide all financial products and services, whereas each credit union has different products and services. Some credit unions may not provide all the products.

Hence we see that, even though banks and credit unions appear to be the same they do have certain differences between them.

Credit Unions and banks are both suitable for customers depending on their needs and interests. Credit unions are not just service oriented; they do make profits provided they operate efficiently.

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Direct Deposit Setup, Benefits and Routing Number

Nov 4th, 2014     Payments

Direct deposits are regular automated money transfers done between bank accounts electronically. The payments are done as per the date, time and period chosen by the payor. Direct deposits are safe, secure and easy, they save the hassles of going to a bank to collect salaries, social security benefits etc. In this new era of technology, it’s a gift to mankind. With direct deposits, the payee (receiver of payment) need not to worry about check clearances as the payment will be done with direct cash via electronic transfer.

Setup Direct Deposits for Receiving Payments

Direct deposits are most suitable for all age groups that are eligible to receive funds via direct deposit. Customers require checking or saving accounts with banks to be able to receive and pay direct deposits. Setting up a direct deposit leaves us with an easy procedure for regular payments, while giving us the benefit of saving time.

The procedure to set up a direct deposit is listed below –

  1. Direct deposits can only be set up when there is an agreement between the persons who are paying and receiving the money.
  2. The payee (receiver of the payment) should find out if the payor’s bank has the service of direct deposits.
  3. If yes, the payee should take a direct deposit form from the payor.
  4. Take a void check along with it for submission. A void check has the word void written across it.
  5. void check for direct debit with routing number

  6. Fill in the routing number on the form, the routing number is listed on the bottom left hand side of the check. You can find routing number for direct debit form on our website.
  7. Fill in the checking account number on the form. The account number is next to the routing number on the check.
  8. Fill in the bank address on the form by calling the banks telephone banking representatives or by checking online.
  9. After filling the details, give the form to the payor or employer.

Direct deposit sample form
By following the above steps the direct deposits can be set up successfully and is effective usually within 1 month.

Best Uses of Direct Deposits

Direct deposits are usually set up for –

  • Payrolls
  • Social security benefits and other government payments
  • Tax refunds (if you choose direct debit option)

In case of payments made by employers to employees the direct deposit can be made between two accounts such as the savings and current accounts. This can be done only by the approval of the employer. If the payees have an additional amount in their account and choose to save, they can certainly set up a standing order to make regular money transfers from their current to savings account.

Electronic transfers are secured by bank, if there are any issues with the transfer. Banks will investigate the reason for the error, if the bank is held liable they will reimburse the cash. If not, they will check what caused the error and rectify it based on the scenario. Direct Debit is quite safe and secure and mostly error free so you can use it confidently.

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Are Deposits in Credit Unions Insured?

Nov 3rd, 2014     Credit Unions

Credit unions are non-profit organizations administered and owned by a group of members who are also its customers. Credit unions provide services and products that are similar to banks. However, they are not the same as banks and differ largely in ownership, region of operations as well as length and breadth of product offerings. We shall discuss these differences in a detailed manner in a separate article but from a retail customer’s point of view, both banks and credit unions are financial service providers where we deposit our money to keep it safe and gain some interest on it and thus, it is important to understand whether our money deposited in credit unions is safe and insured or not? Credit unions deposits are similar to that of checking, savings and deposit accounts and are insured by government or private organizations.

NCUA insures majority of the Credit Unions

In case of heavy losses or bankruptcy, banks are covered and insured by FDIC (Federal Deposit Insurance Corporations). Likewise, federally insured credit unions are insured by NCUSIF (National Credit Union Share Insurance Fund); NCUSIF is supported and backed by the US government. NCISIF are administered by NCUA (National Credit Union Administration). Some credit unions do not come under federal insured credit unions. Such credit unions are likely to have private insurance. As safety and security are the main reasons of deposits, it’s always a must to do a thorough research while depositing with credit unions, to know its insurance back up and features.

Expert Advice: Always prefer Credit Unions insured by NCUA (NCUSIF)

NCUA Insures Credit Union Deposits

How much is insured by NCUA?

In case the federal credit union faces failure, the US government assures to provide funds deposited in the accounts. NCUSIF provides up to $250,000 reimbursements “per depositor per institution” in case of the credit union failure. The regular share deposit and IRA deposits (retirement accounts) are insured separately for $250,000. If the amount deposited by the depositor is less than $250,000 than the depositor would be covered for the amount deposited in the account. In some cases, deposits might be covered for more than $250,000, as it depends on the account management system of the depositors.

Additional Insurance coverage by NCUSIF

Although the maximum insurance for an individual account is $250,000, you can avail a much higher insurance with little planning and account structuring.

Federal credit unions provide separate coverage for account holders on other type of accounts apart from the individual accounts. The other accounts that can be covered are joint accounts, trust accounts, retirement accounts, revocable trusts and irrevocable trusts.

NCUSIF provides additional $250,000 coverage apart from the individual accounts at each federal credit union. If the members are qualified for the above mentioned accounts, then each of these accounts would have their very own insurance coverage which in turn forms and aggregate.

We have listed a table below with examples to help you understand this better:

Individual Coverage:

Individual account Individual $ 250,000
KEOGH Retirement $ 250,000
Individual Retirement account (IRA) Individual $ 250,000
Total $ 750,000

Accounts for a married couple:

Individual Account Husband $ 250,000
Individual Account Wife $ 250,000
Joint Tenancy Accounts Husband & Wife (Joint) $ 500,000
Testamentary Revocable Trust Account Husband as Trustee for Wife $ 250,000
Testamentary Revocable Trust Account Wife as Trustee for Husband $ 250,000
Individual Retirement Accounts(IRA) Husband & Wife (Both have IRA account) $ 500,000
Total $ 2,000,000

Accounts with 4 family members

Individual Account Husband $ 250,000
Individual Account Wife $ 250,000
Individual Account Child A $ 250,000
Individual Account Child B $ 250,000
Joint Account Husband & Wife $ 250,000
Joint Account Husband & Child A $ 250,000
Joint Account Wife & Child B $ 250,000
Joint Account Child A & Child B $ 250,000
Testamentary Revocable Trust Account Husband as Trustee for Wife $ 250,000
Testamentary Revocable Trust Account Wife as Trustee for Husband $ 250,000
Testamentary Revocable Trust Account Husband as Trustee for Child A $ 250,000
Testamentary Revocable Trust Account Wife as Trustee for Child A $ 250,000
Testamentary Revocable Trust Account Husband as Trustee for Child B $ 250,000
Testamentary Revocable Trust Account Wife as Trustee for Child B $ 250,000
Testamentary Revocable Trust Account Husband $ 250,000
Testamentary Revocable Trust Account Wife $ 250,000
Individual Retirement Account (IRA) Wife $ 250,000
KEOGH Husband $ 250,000
Total $ 4,000,000

From the above illustrations, we can clearly see that based on the eligibility, customers can avail insurance of much more than standard $ 250,000 from NCUA by carefully structuring their accounts and deposits.

What is not covered by NCUA?

In credit unions liquid cash and cash like investments can be stored with protection of NCUA, whereas money market funds, mutual funds, annuities and other investments are not covered by NCUSIF.

The NCUA insurance generally covers –

  • Current accounts
  • Saving accounts ( Deposit accounts)
  • Money market accounts
  • Certificate of Deposits (CD) such fixed deposit accounts and deposits made via bond
  • Individual Retirement arrangement accounts (IRA’s)

The insurance policy of the credit unions can be verified via a research through the NCUA. It’s always sensible to check how the credit unions are insured. As federally insured credit unions are covered by government, many have more confidence and faith in them while taking up deposits with credit unions. Information about the insurance can be verified by asking relevant questions and research. Private credit unions have private insurance. Hence most of the credit unions have some back up for their deposits.

Based on the suitability and trust factor one can sign up for credit union deposit of their choice. However private insurance information should be collected and reviewed before taking any decisions. Credit unions insured by NCUSIF are more reliable than the private insured credit unions as they have the back up of the US government. However though some credit unions deposits are not insured by the government, deposits can be made with them if the depositors are convinced by the private insurance based on their research and faith.

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How ACH Payment Works

Oct 28th, 2014     Payments

ACH (Automated Clearing House) is the electronic mode  (without any sort of cheques) of bill payments and money transfers. ACH was started in late 1960s.  NACHA, the electronic payments association is the trustee of the ACH processing system. ACH transactions are more preferable in case of  employee wages, regular bill payments and etc. Before knowing how the transfers/ payments are done through the process of ACH you have to know what is ACH and why it is in use?

What is ACH?

ACH is the process of automatic transfer of money from sender to receiver using electronic mode of transaction. Electronic mode of transaction means transferring  do not need physical existence or checks to transfer money or to do a payment. This process is an easy, simple and fast going process. As every thing as its own pros and cons  apart from pros it have disadvantages too such as

  • You might withdraw more amount than existed in your account.
  • You might forget for the reason of payment.

Why ACH?

In the current situation using checks, going to banks and checking the status of our transfer is not a possible task and even time consuming process. ACH is the process of electronic mode of transaction it allows direct transfer, Money payment, Online bills and etc.

Business sector most probably prefer ACH payments. When customers had payment by other means with them they need to check the bank status to know about the transaction. Some times payments may lost it needs labor to correct ACH payments don’t have such type of issues. ACH payments are simple, fast and reliable.

Customers also feel comfortable with ACH payments as they don’t need to write checks and wait for mail for successful transaction. You can check the status of your transaction at that particular position no need to rush to bank if ACH mode is used for transaction.

How ACH Works?

ACH mode of transaction involves mainly-

  • Sender
  • Sender bank
  • ACH Operator (FedACH & EPN)
  • Receiver Bank
  • Receiver

ACH transaction involves mainly these areas to do ACH payment.

ACH payments

Where ACH is preferable?

  • Paying wages to an employee
  • Business – Business Payments
  • Direct Deposits
  • Transferring money from one bank to the other
  • Business pays to supplier
  • Online Bill Payments

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