A credit union savings account holds your money and pays you interest

A credit union savings account is a place to store money that you own. The credit union keeps your cash safe, and in return, it pays you a small amount of money — called interest — just for letting them hold it. The interest rate (the percentage they pay you) is usually higher than what a traditional bank offers, though it changes based on what the credit union decides and what the broader economy is doing.

You put money in whenever you want. You take money out whenever you want. The credit union tracks how much is yours, and that amount is insured by the National Credit Union Administration (NCUA), a government agency. If the credit union fails, your money up to $250,000 is protected — you will not lose it.

The main difference between a savings account and a checking account at a credit union is how often you can move money out. A savings account is meant for money you are building up and not spending regularly. A checking account is meant for everyday spending. Credit unions sometimes limit how many times per month you can withdraw from savings, though many have removed this limit in recent years.

Key Takeaways

  • A credit union savings account holds your money safely and pays you interest, which is money the credit union gives you for letting them use your deposit.
  • Your money is insured up to $250,000 by the NCUA, so your deposit is protected even if the credit union fails.
  • You can deposit money anytime, but some credit unions limit how many times per month you can withdraw from a savings account.
  • Interest rates at credit unions are often higher than at banks, but the rate you receive depends on the credit union and current economic conditions.

How interest works on your savings

When you put $1,000 in a credit union savings account, the credit union uses that money to make loans to other members. They charge those borrowers interest on the loans. The credit union then shares some of that money with you as a reward for letting them use your deposit. This is your interest.

Interest is usually described as an annual percentage rate, or APR. If your account earns 0.50% APR, that means over one year, the credit union will add 0.50% of your balance to your account as interest. On $1,000, that would be $5 per year. The interest is usually added to your account monthly or quarterly, so you earn a tiny bit each month.

The more money you have in the account and the higher the interest rate, the more interest you earn. But interest rates change. Your credit union might lower the rate if fewer people are borrowing, or raise it if more people want loans. You will see the new rate in writing before it takes effect.

Opening a savings account at a credit union

To open a savings account, you will need to become a member of the credit union first. Membership usually requires living or working in a certain area, belonging to a certain employer or organization, or having a family member who is already a member. Once you are a member, opening a savings account is straightforward.

You will bring an ID and proof of address (like a utility bill or lease) to the credit union branch, or you may be able to start online. The credit union will ask you to sign paperwork that explains the account rules, the interest rate, and any fees. Then you deposit your first amount of money — this can be as little as $1 at many credit unions, though some have a minimum like $25.

The credit union will give you a debit card or ATM card so you can withdraw money from machines, and online access so you can check your balance and move money between your accounts from home or your phone.

Fees and rules you should know

Most credit union savings accounts have no monthly fee, which is one reason people choose them over banks. However, some credit unions charge a small fee if your balance drops below a minimum amount — often $25 or $100. Read the account agreement to see what applies to your credit union.

Some credit unions limit how many times per month you can withdraw money from savings without paying a fee. Federal rules used to require this, but many credit unions have stopped enforcing the limit. Ask your credit union whether there is a withdrawal limit and what happens if you exceed it.

If you close your account, the credit union will return your money and any interest you have earned. If you have not used the account for a very long time — usually several years — the credit union may close it and send you a check for the balance. This is rare, but it is worth checking on an old account if you have not looked at it in years.

Moving money between your accounts

Once you have a savings account, you can move money to and from other accounts you own at the same credit union. If you also have a checking account there, you can transfer money online or at an ATM whenever you need it. This is usually free and happens right away.

You can also set up automatic transfers, which means the credit union moves a set amount from your checking account to savings on a day you choose — like every payday. This is a straightforward way to save without thinking about it. You can change or stop the transfer anytime.

If you want to move money to a savings account at a different credit union or bank, you will need to provide that institution's routing number and your account number there. The transfer usually takes one to three business days.

How your savings account grows over time

Your balance grows in two ways: when you deposit money, and when the credit union adds interest. The interest is small — on $1,000 at 0.50% APR, you earn about $5 per year. But the longer you leave money untouched, the more interest adds up. This is called compound interest: you earn interest on your original deposit, and then you earn interest on that interest too.

If you deposit $100 per month into an account earning 0.50% APR, after one year you will have roughly $1,205 — the $1,200 you deposited plus about $5 in interest. After five years, you will have roughly $6,150 — the $6,000 you deposited plus about $150 in interest. The longer you save, the more the interest compounds.

Interest rates change, so your earnings will not be the same every year. If rates go up, you earn more. If rates go down, you earn less. But as long as you keep money in the account, you will keep earning something.

Savings accounts versus other ways to save at a credit union

A credit union savings account is the most basic way to save. But credit unions also offer money market accounts, which usually pay higher interest if you keep a larger balance, and certificates of deposit (CDs), which pay even higher interest if you agree to leave your money untouched for a set time — like six months or one year.

A savings account is best if you want to be able to withdraw money whenever you need it without penalty. A CD is best if you have money you know you will not need for several months and you want to earn more interest. A money market account is a middle ground: higher interest than savings, but you can still withdraw money (though sometimes with limits).

Ask your credit union what rates they are currently offering on each type of account. The difference in interest can be small, so choose based on when you think you will need the money.

Frequently Asked Questions

What happens to my money if the credit union closes?

Your savings up to $250,000 are insured by the NCUA, a government agency. If the credit union fails, the NCUA will transfer your account to another credit union or send you a check for your balance. You will not lose your money.

Can I withdraw money from my savings account anytime?

Yes, you can withdraw anytime. Some credit unions limit how many times per month you can withdraw without a fee — often six times — but many have removed this limit. Check your account agreement or ask your credit union about their withdrawal policy.

How often is interest added to my account?

Interest is usually added monthly or quarterly, depending on the credit union. You will see the interest show up as a deposit to your account on the statement. The credit union will tell you the schedule when you open the account.

Do I have to keep a minimum balance?

Many credit unions have no minimum balance requirement. Some require $25 or $100 to avoid a monthly fee. Ask your credit union what the minimum is for your account, and whether the fee applies if you drop below it temporarily.

Can I use my debit card to withdraw from savings at an ATM?

Yes. The credit union will give you a debit card or ATM card that works at their machines and at ATMs in their network. You can withdraw cash anytime. Some credit unions charge a small fee if you use an ATM outside their network.