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7 reasons credit unions are better than banks

A reader is wondering if a credit union is a good place to look for a car loan. The answer? When it comes to both saving and borrowing, credit unions are better than banks.

By MSN Money Partner Oct 8, 2013 2:22PM

This post comes from Stacy Johnson at partner site Money Talks News.


MoneyTalksNews on MSN MoneyThis week's reader question nudges me in a direction I've gone many times, albeit not recently:

Are credit unions a good place for a loan? I have very good credit and am planning on buying a vehicle and was told that credit unions offer a cheaper interest rate. How dependable are they? -- Gwen Marie

Cash machine © Compassionate Eye Foundation/Getty ImagesI've been urging viewers to join credit unions since I started doing TV news 22 years ago. Here's why:


1. Lower rates on loans

According to the National Credit Union Administration, as of June 28 the average rate on a 36-month car loan was 2.85% at credit unions and 5.59% at banks. So banks are charging nearly twice as much for the same loan.


2. Higher rates on savings

The rate differences on savings aren't as great. But interest rates on 10 different types of accounts, from checking to five-year certificates of deposit, are higher on average at credit unions than banks, according to the same website.


3. Better credit card deals

According to the NCUA, the average credit card interest rate in June was 12.85% for bank-issued cards, compared with an average of 11.56% for cards issued by credit unions.


In addition, credit union credit cards tend to have lower fees and fewer of them.


4. Easier to borrow

While no lending institution is going to be careless with loans, community-based credit unions tend to be easier to deal with than megabanks. Lending decisions are more likely to be made locally with more flexibility.


In addition, while few national banks would make what's called a "signature loan" -- an unsecured loan guaranteed only by your signature -- credit unions routinely offer this service to their members with good credit.


I recently applied online for a car loan from a local credit union without even becoming a member. The application wasn't nearly as onerous as I had expected, I was approved in a matter of hours and, depending on whether I bought a used or new car, the rate offered was as low as 1.99%. (Should I actually take out the loan, however, I'd have to join the credit union, which simply means making a small deposit.)


5. Convenience

You'd think that a small credit union without a million branches would be less convenient than a giant national bank. Not necessarily.


Credit unions have gone a long way toward making their online, phone and in-person services as easy as possible. Many credit unions belong to a shared branch cooperative  that allows members of one credit union to conduct business at any other member credit union anywhere in the country -- even overseas. And when it comes to finding the nearest participating credit union? Yes, there's an app for that.


6. Lower fees

When it comes to banking fees, you'll probably find better deals at credit unions than at the giant commercial banks. Whether you're comparing fees to maintain a checking account, foreign ATM fees, or penalty fees for overdrawing your account, they'll probably be lower.


7. Human beings answer the phone

I've gone to the same national bank branch for more than 10 years, and the people there are wonderful. I'd never suggest that any business automatically beats another when it comes to friendly employees. That being said, however, on those rare occasions when I needed to call my bank's national customer service number to get a problem resolved -- not fun.


Credit unions are typically smaller. Should you have a problem, odds are greater you'll be talking to a live person sooner.


Are they safe?

In the question above, Gwen Marie asks, "How dependable are they?"


Credit unions offer the same deposit guarantee offered by banks -- up to $250,000. They're not FDIC-insured. Instead, they have their own insurance fund. You can read more about the details of credit union deposit insurance in this article from TheStreet.com.


As far as "dependable," while every business is different, credit unions are generally going to be as solid as banks. But it certainly never hurts to ask questions, like how long they've been in business and how many members they serve.


How do you join?

In days past, to join a credit union, you had to work at a specific company, or be a member of a specific organization or profession. Today? Not so much.


Laws still require credit unions to have a defined group of members, but that defined group can be pretty broad. For example, of the approximately 8,000 credit unions nationwide, about 25%  are community-based. In other words, to qualify as a member, you only need to live in the same city or county as the credit union. In fact, you might not even need to actually live in the area. Working there or going to school there might be enough. Even being related to another member could qualify you.


In short, barriers to membership at some credit unions are about as high as the ones you'll find at your neighborhood warehouse store.


You can search credit unions at a number of sites, including Find A Credit UnionCU Lookup and the Credit Union National Association site.


More on Money Talks News:

139Comments
Oct 8, 2013 5:25PM
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I love my credit union! I will never use a regular bank again! Every point made above is correct. I get much better interest rates at my credit union and customer service is great!
Oct 9, 2013 1:58AM
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Changed my  home loan over to my credit union after Wells Fargo REFUSED to give me a lower rate (market was 3.5 I was paying almost 8%).  Wells figured why should we re-finance you when we already have your money.  My credit union gave me 3.15% and in 4 days i took a check to Wells Fargo, suddenly their officer was willing to bend over backwards to give me a new loan.  I will admit that i LOUDLY told her that she could GO F#CK HERSELF AND HER BANK, I had tried just a couple months before to do a refinance and was told by her people NO WAY.  If you can deal with a credit union in your local area you are CRAZY not to.  The large banks will do nothing but screw you over with fees, and rules made for one reason, making them money. 
Oct 8, 2013 6:23PM
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I have used Credit unions for the last 25 years and love them....see no reason to ever change.
Oct 8, 2013 6:45PM
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I have been with my credit union for 37 years, will NEVER do business with a traditional bank again. The credit union staff know me, my family, meet our financial needs, usually with a phone call.  Don't wait, kick the bank to the curb, join your credit union today! 
Oct 8, 2013 8:04PM
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Credit Unions have a different mission than banks. Part of the reason Credit Unions are so great is that there is an educational element built into their business model. They want you to understand what you are signing up for---and how to manage your finances.

 

The "cost of admission" is generally lower than a bank as well. Less red tape, lower deposit requirements. Most people who struggle to save set themselves up for failure because they set unrealistic expectations. For many, the first 300 or 500 is the hardest. Thats usually the bare minimum at one of the big banks to open a basic savings account. The credit union I belong to has a $5 minimum savings deposit. No catches.

 

The question is, who do you want to do business with? Your neighbors, or Wall Street?

Oct 8, 2013 10:00PM
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Lets not forget iamnotalawyer about the BILLIONS in tax payer money shoveled to the banks to reward them for their mismanagement and flagrant bonus grabbing for said mismanagement. Is this the taxes you are speaking of? The taxes that me and other hardworking Americans paid out of our paltry checks so that the BANKS could grab it along with their layers of fees and "cost" that apparently still weren"t enough to satisfy their greed. Really........could you be any more of a tool? Nice try BANKER
Oct 9, 2013 2:05AM
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It was major banks, who angered me with their greed, that forced me to try a credit union. Now I deal with two, and I have no intentions of ever becoming a victim of banks again. I actually have a relationship with the people in one of the credit unions I use. Is that strange or what?
Oct 9, 2013 1:09AM
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I get more for my money from a Credit Union than from a Bank.  I have been a member for some 30 yrs.
Oct 9, 2013 4:52AM
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I would NEVER go back to the 'big bank industry'.  When I wanted a car loan, all I did was call my credit union and told them how much I needed.  They approved me immedatley with a very very low interest rate!  With my credit union, one of the requirements was that you have to have a certain credit score tho. so not Everyone would qualify.   
Oct 9, 2013 10:23AM
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I switched to a credit union when my bank decided that because I've graduated uni and am therefore no longer in school, they were going to charge me higher rates and more fees (which they claimed they should've been charging me all along, but didn't due to their "kindness" towards students). I immediately cancelled my account and started a new account with the credit union down the street (which didn't charge me those fees whether I was a student or not). I'll never do business with a bank again.
Oct 9, 2013 8:03AM
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Been with my Credit Union since 1985. I have not done ANY business with a bank since 1999.
Oct 8, 2013 6:42PM
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Got a loan for my motorcycle. It was 3.4% 
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my credit union offers something called Excel Checking and pays 3% on balances up to $5000.  There are conditions but they are easily achieved.

Oct 9, 2013 9:58AM
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#8 they are not run by greedy scumbags!
Oct 9, 2013 2:04PM
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Some of these posts say that "Credit Union's don't pay ANY taxes". That is a very erroneous statement. Credit Union's pay more in taxes than many realize. After research, I found out the truth. CU's pay State/Federal Withholding tax, Social Security tax, Medicare taxes, State/Federal Unemployment taxes, Property taxes, Sales Excise taxes, and several others.

 

On top of all the taxes they do pay, CU's DO NOT get to write off donations, marketing efforts, community service projects, or asset depreciation like banks do. CU's must maintain more than 7% net worth and their board of directors are not paid anything. AND Credit Unions NEVER took any "taxpayer" money (TARP). Can banks say that?

 

The bankers' statements mention credit union tax exemption status being lifted. This is getting to be old news. Let it go already.

Oct 9, 2013 10:30AM
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A Credit Union is just like any other business.  You must shop around to find the best Credit Union.  Locally we have a Credit Union that is no better than many banks.  Their rate are the same as the bank.  Do your homework before joining a Credit Union.  Do not assume that the rates are always better. Each Credit Union is different. 

Did some shopping around and I the interest rate on a CD was more than double from one Credit Union to the next. 

I agree that Credit Unions are better then most Banks.  There are some small Community Banks that do offer great rates. 

Oct 9, 2013 10:22AM
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In my adult life, I banked with a bank for one year and it was ridiculous.  Other than that, I have enjoyed banking at credit unions.  Many of the posters have identified the reasons.  Being a share holder as a member gives you the ability to have input, whereas banks, they flick you off like a gnat.
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Screw the capitalistic big banks. Stay with or join a credit union. Let Wells Fargo and BoA and the rest of the big banks fail due to their own greed.
Oct 9, 2013 11:31AM
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Some of these banks that complain about credit union tax exemption fail to mention that some banks have S corp status which greatly reduces their tax burden.  Also, credit unions did not receive any TARP funds or government bail outs.  Also, even the largest credit unions are small by comparison to these mega banks.  Credit unions pay all other taxes:  sales taxes, real estate taxes, etc.  I heard a statistic that even if credit unions were taxed the revenue wouldn't even run the government for an hour.  Too bad banks can't tell the whole story.
Oct 9, 2013 12:36PM
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Credit unions are great, and their interest rates on personal loans (auto, recreational vehicle, etc.) are almost always lower than the community banks. The community banks have no interest in being in that market. By the way, credit unions don't charge fees because their expenditures are lower than commuity banks. Credit unions don't pay taxes. But they make just as much money - if not more - than community banks.
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