February 24th, 2010
Should You Stick With A Bank Or Switch To A Credit Union?
In light of increasing credit card fees and loopholes in the CARD Act, fed-up consumers are ditching banks for credit unions to take advantage of lower interest rates, better banking practices, and consumer-friendly policies. Credit unions continue to have some of the best deals on credit cards as well as a consumer-friendly approach that is a welcome reprieve from exorbitant credit card fees and predatory practices. But just how do credit unions measure up against big banks?
The Up-And-Coming Contender
Credit unions, an alternative to brick-and-mortar banks, offer the same financial services as banks but are operate differently as member-owner, not-for profit institutions, which some argue makes for better service and bigger savings.
Credit unions are member-owned in that when you join you are considered a part-owner, whereas banks are owned by investors and operate for investors’ interests. Credit unions are considered not-for-profit because profits are distributed back to members in the form of lower interest rates and higher dividends; banks are for-profit because they make money for their investors. In essence, credit unions prioritize service and savings for its members, and are not in the business to pay off high-priced execs or hungry stockholders. Also, rest assured that it is still a safe place to keep your money, as credit unions under the National Credit Union Administration- similar to the FDIC– are insured up to $250,000 per account.
Rates
This cooperative, not-for-profit structure explains why interest rates are consistently lower and banking practices generally fairer and with less punitive fees. Below are some rates, from Bankrate.com, comparing the average rates of financial products to show credit unions totally dominating banks when it comes to better rates:
|
Financial Product
|
Credit Union Average Rate
|
Bank Average Rate
|
SAVINGS
|
|
Regular Savings
|
0.39%
|
0.28%
|
|
Interest Checking
|
0.28%
|
0.21%
|
|
Money Market
|
0.70%
|
0.44%
|
|
1 Year CD
|
1.34%
|
1.04%
|
|
CONSUMER LOANS
|
||
|
Credit Card
|
11.65%
|
12.80%
|
|
48 Month New Car
|
5.00%
|
6.16%
|
|
48 Month Used Car
|
5.25%
|
6.75%
|
|
36 Month Unsecured
|
10.62%
|
12.45%
|
|
MORTGAGE LOANS
|
||
|
Home Equity LOC
|
4.45%
|
4.91%
|
|
1 Year ARM
|
4.24%
|
4.38%
|
|
30 Year Fixed
|
5.23%
|
5.24%
|
*All Data Current as of 02/23/2010. Based on 15751 institutions. Note: Average rates are listed; individual rates will vary. See Datatrac Research Standards.
Customer Service
Also, because credit unions are smaller than most banks, they tend to have more personalized service catered towards its members. Credit unions consistently rank high in consumer confidence as a financial institution that puts customer interests first, reports CreditCardGuide. In the same survey, big banks received the lowest ratings.
A downside to the personalized, community feeling at a credit union is its smaller network and more limited accessibility as compared to large banks; some small credit unions have only one physical branch. You’ll have to find an ATM within your network such as machines at a 7-Eleven, Walgreens, Costco, or go to other banks’ ATMs at a price (though some credit unions will reimburse ATM fees). The select membership also suggests that getting into a credit union is more difficult that the average big bank. Just about everyone can be part of a credit union according to where they work, what associations they are part of, or their zip code. However, some credit unions have strict and narrow membership requirements, based on affiliation or other qualifications.
What’s Right For You
Finally, while exploring credit unions and banks, focus and prioritize the services you need. If you are sick and tired of sky-rocketing bank fees, excessive penalties, and impersonal customer service, looking into local credit unions should be on your list of things to do. Being part of credit union makes you a valued member of a smaller institution, with pluses of better rates but some restrictions like ATM transactions, which can cost more at a credit union than a bank. Contact both banks and credit unions so that you can receive rate quotes on the products you’re looking for. Finding the right credit union, or deciding to stay with your bank, will depend on what you really need from your financial institution.
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I’ve been part of a credit union for over 15 years — it was one of the best financial moves I ever made.
They’ll still hit you with fees and stuff, but they tend to have better customer service than banks I’ve dealt with.
I would definitely switch to a credit union if my bank wasn’t so great. Guess I’m one of the lucky few with a good bank (hint: go local).