11/16/2012 4:00 PM ET|
Is a credit union a better option?
As alternatives to big banks, credit unions can provide some surprising advantages on basic financial services.
In recent years, the turbulent banking industry has increasingly driven consumers to seek financial alternatives to the biggest national banks. A taxpayer-funded bailout, new and growing fees for basic banking products and a series of industry scandals have combined to leave a bad taste in the mouths of many bank customers. Enter credit unions.
Though they're by no means a new concept (the oldest dates back to 1908), credit unions gained new attention in late 2011 after Bank of America -- at the time the largest U.S. bank by asset size -- proposed a $5 monthly fee for checking account customers who used a debit card to make purchases. In response, a grassroots-driven event known as "Bank Transfer Day," urging consumers to leave big banks for smaller, community-focused credit unions, made national headlines. B of A ultimately decided not to impose the $5 fee, but the event signaled the depth of tensions between the bank and its customers.
Such an atmosphere warrants a closer look at the advantages of credit unions over the four big banks: JPMorgan Chase, Wells Fargo, Citibank, and B of A. Credit union advocates point out that banks are for-profit and serve stockholders, while credit unions are not for profit and serve members. They also note many banks have a national or even international focus, while credit unions set their sights on their local community.
All of that is true, but are there quantifiable benefits for individual consumers who are considering switching to a credit union?
Over the past year, NerdWallet.com has extensively analyzed of various facets of banking, pitting credit unions against banks. The results show that, when it comes to many basic services, credit unions outperform the biggest banks.
According to the Federal Reserve's Survey of Consumer Finances, 90% of families in 2010 held some assets in a checking account, making it the most-common deposit option. These accounts are also critically important for their primary uses: depositing income, paying bills and making regular purchases. Because of the necessity and frequent transaction activity of checking accounts, the potential for slip-ups -- and the ensuing fees -- is high.
Since the July 2010 enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, big banks have been making significant changes to their checking account offerings and fees. To make up for increased regulatory costs and new limitations on their ability to charge certain fees, such as overdrafts, most banks have eliminated free checking accounts for most customers. Many who use banks now must maintain a minimum balance or meet other requirements to duck monthly fees.
What about credit unions? Most have been able to maintain truly free checking accounts, which translates to savings of more than $100 per year on average, when compared with bank customers who don't meet the requirements to waive a monthly fee. Further, many credit unions pay dividends on checking balances -- something that's usually found only with high-fee premium checking at big banks.
Savings accounts and CDs
For consumers with extra funds, credit unions can also offer higher deposit rates than their bank counterparts do. The big banks are currently offering effectively no interest on a basic savings account and annual percentage yields of less than 0.75% for five-year certificates of deposit. By comparison, NerdWallet found that credit unions average more than 0.15% interest rates for a typical savings account and 1.42% APY for a five-year CD -- nearly double what's offered by Bank of America and its peers. As consumers struggle to keep up with inflation, every bit of extra yield helps.
Branches and ATMs
A common concern among bank customers considering a switch to a credit union is that they'll face limited access to branches and ATMs. What they don't know is that most credit unions have addressed these concerns. Many are members of the CU Service Center network, which allows members to make transactions at any credit union within the network. That means members have access to nearly 5,000 branches nationwide, which is comparable to Wells Fargo's 6,300, as well as B of A's 5,700.
Further, credit unions actually outperform the big banks when it comes to self-service access to your money. Many are part of a surcharge-free ATM network, so members are not limited to just their own institution's machines, as with a bank. The largest of these networks includes more than 30,000 ATMs. At Chase or any other bank, you'll be limited to fewer than 20,000.
They may be smaller than the big banks, but credit unions can operate like much-larger institutions and also offer higher-quality financial products for their members. As the anniversary of Bank Transfer Day approaches, don't ignore your local credit union as a viable option for your banking business. Lower fees and higher deposit yields are likely worth exploring a switch.
More from U.S. News & World Report:
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credit unions are the ONLY way to go...
oh yea...banks will promise you anything thing to get your money (no fees, etc..) but beware....6 mons, a yr or so down the line...the fees start "magically" appearing.
i have been with my state cr union for nearly 30 years and not one bank can touch the interest rates that cu's can give you....
(oops, yea they can...but for a 5 yr cd....but then again....i can get that same rate for 6 mos or a 1 yr cd...NOT 5!!!!)
i have not been charged one fee for checking, savings and even if i don't have enough money in my cking acct, money from my savings will automatically be transferred (WITH NO FEES)...can your bank do that????
will your bank waive fees for withdrawing cash from an atm? I THINK NOT!!!
and speaking of atms.....i can deposit money, checks, etc in any atm and not get charged a fee...DOES YOUR BANK ALLOW YOU TO DO THAT????
banks are good for FACE value, but overall, banks are nothing more than money takers (of your money), not money makers (for your money).
NO ONE...will ever convince me that banks are better than credit unions!!!!
The best decision I ever made was switching to a credit union. I have never recieved such great customer service and convenience as I have from my credit union. The profit driven beholden to shareholders big bank business model has to go. Their greed is and almost did ruin economy. Too big to fail, and too big to jail. I like that credit union focul on local community economies.
Now it we could just get not for profit health care insurance unions we would be headed in the right direction.
Credit union spends time with you to go over the loan and works with you to get it approved. Additionally they have better interest rates and so on, only if the ATM's like Bank of America, I would defiantly switch over. Banks all they do is find ways to stick you with fees.
I recently signed up with an ING "online" FDIC savings account. it's format is very similar to the e-bay-paypal scheme of having an online account tied with your usual checking account. the association enables me to "upload" or 'download" cash from my checking account to that online savings account.
the net result that matters is while the bank or credit unions "offer" 0.0015% interest rates, the online savings account provides 0.0075%. still small but 7 times more than available via brick and mortar banks.
my focus is on my interest and my service. i get it where i can. local or online. because NONE of them are truly interested in the individual.
After a nasty divorce, I had to refinance the credit-cards to the score of $40k, which my ex had maxed out during our separation. Also she had missed a bunch of payments, so the interest on all of them was 35% APY (plus fees, etc.). It was a freaking mess!
After the divorce I immediately opened an account with a credit-union and laid out the situation.
That same day I walked out the door with my credit-cards paid off and consolidated in an unsecured loan at a very attractive APY.
That's not where it ended however.
In parting I was told that I could use my share of the accrued membership-rewards points on the previously shared account with my ex, to further pay down the interest on the loan at any time.
I took them up on that which saved me another full 2% on the interest, right from the get-go.
Now it is a half year later and with my normal activity on the account I have accrued enough to buy it down yet another 0.5%, which means two full monthly payments over the length of the loan.
If I keep that up, I may be able to halve the interest before the loan is paid off. Six months before the calculated pay-off schedule.
I used to work for a bank, but I was flabbergasted with the smooth and quick service my credit-union provided me with as a brand new member.
I can handle all of my accounts online and only rarely have to visit the local branch office and with the credit-union ATM network I get zero charges, not only here in the US, but also in Europe.
Never back to a bank for me!!
My mother has an account with bank of America and I am listed with her. One day when I made a deposit for her, and then I tried to cash a $30 check. They wanted me to pay a $5 service charge. When other banks had a one line easy banking service, BoA still made you choose a line and hope for the best. BoA does not care a twit for the average customer. I have been with a credit union for many years and plan on moving my mother's money the second she dies.
She's 92 yrs. Institutions that don't care about people, in my opinion are evil. I resent the government baling out those institutions. Everyone needs to bank at a credit union. They are non profit and care about their customers. Banks are the downfall of this country. If you care about this country, don't do business with banks. Save our country. DOWN WITH BANKS!
For all of you credit union loving, bank-bashers, DID YOU KNOW CREDIT UNIONS DO NOT PAY FEDERAL INCOME TAXES?? If banks did not have to pay federal income taxes, they could offer better rates too. You should really try banking with a small community bank, just as good as any credit union, and paying their fair share of taxes like the rest of us! By the way, if you hate the idea of lobbyists, check and see how big the credit union lobby is vs the banking lobby........
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