9 reasons credit unions are better than banks
Credit unions exist to serve their members. What big bank can say that?
This post comes from Allison Martin at partner site Money Talks News.
While out and about, you may have passed by the local credit union without looking twice because you don't have a need for their services. Well, at least that’s what you thought.
Which brings me to the following question: Are you aware of how credit unions operate and what they entail? If so, you may be inclined to open up an account at one closest to you or even make the switch from your bank.
What exactly is a credit union and why is it better?
MyCreditUnion.gov defines credit unions as "not-for-profit organizations that exist to serve their members rather than to maximize corporate profits." They operate similarly to banks, as they make loans to members and accept deposits.
So, why should I choose the local credit union over big boy banks?
The sole purpose for a credit union's existence means that it should have your best interests at heart, and not the bottom line of the institution. Big banks, on the other hand, are there to turn a profit and will seemingly do whatever it takes to meet their numbers.
Because they follow a cooperative structure, credit unions are owned and operated by their members. Upon making the initial deposit, you will be granted voting rights along with surplus income returned in the form of dividends because cooperatives are owned and operated by members.
As a member, you may be also able to conduct transactions at other affiliate locations outside of your institution. And some credit unions reimburse their members for ATM fees incurred outside of their machines. This was a major lifesaver when I arrived at college and discovered that one of the local credit unions near campus was partnered with my credit union in my hometown.
Credit unions have lower expenses, so they are able to pass on the savings to their members. For instance, many credit unions offer free checking accounts with no minimum balance constraints, but you will often have to pay a fee at the big boy banks if your funds fall below a certain number or you fail to meet other criteria. You likely will also be assessed a fee for each transaction that is processed using overdraft protection.
4. Loan rates
Every loan I've ever gotten has been from the credit union, even after shopping around at the big boy banks. They usually have better rates because they are nonprofit and aren't looking to make their wallets fatter. According to the the National Credit Union Association (.pdf file), as of Sept. 30, the average interest rate on a 48-month new-car loan was only 2.91 percent at the credit union, but 4.21 percent with major banks.
5. Credit card offers
The NCUA also indicated that the average interest rate for credit cards was 10.99 percent for credit unions and 11.82 for banks. So there isn't much of a variance in terms of APR, but the plastic from credit unions are usually less costly in terms of fees.
Been turned down by all the major banks? Try your local credit union, as its borrowing standards are more flexible and they may be willing to work with you, especially if you are a member in good standing. And if you're self-employed, you already understand how tough it can be to get approved for anything with major banks.
7. Earnings on savings accounts
Although the interest rate is still on the low side, it beats the major financial institutions. According to the NCUA, as of Sept. 30, credit union savings accounts yielded earnings of 0.15 percent on average while banks earned only 0.06.
8. Customer service
The credit union may not have a 24/7 customer service line for you to call at 2 a.m. when you have a burning question about your account, but rest assured that the focus will always be on you. Every credit union I've ever been a member of was staffed by friendly representatives who knew me by name. I can't say I've had that experience with banks.
Also, there's no need to worry if your card is lost or stolen because there is typically an after-hours hotline you can call at any time to report these unfortunate occurrences.
You can rest assured that your funds are safe in the credit union's hands. Similar to most major banks, all accounts are federally insured up to $250,000 and backed by the U.S. government.
What if I want in?
Credit unions usually serve individuals affiliated with a particular organization or geographic region. But this doesn't necessarily mean you won't be able to slip through the cracks. To search for a credit union in your area, take a look at:
Also, it wouldn't hurt to take a glance at Kiplinger's article on credit unions with unrestricted membership.
Of course, the terms, conditions and fees vary by financial institution, so you'll need to inquire about specifics.
Do you prefer credit unions over banks?
More on Money Talks News:
I gave up on commercial banks almost 15 years ago. I would go inside to the bank to cash and deposit my paycheck and I would get a snotty, "You should be using the ATM" from the teller who felt that she was being bothered by my presence. This was at a time when banks were merging at what seemed to be every other week. I had a N.O.W. checking account that required a $1,000 minimum balance to earn interest and I was okay with that. After the bank had been bought up by one of the out of state monster banks, I opened up my monthly statement to find a $22 service charge. When I called the 800 number I spoke to a phone rep thousands of miles away who told me that I did not read the fine print and that I needed to have $25,000 in my account to gain interest or face a service charge.. Who on Earth has that kind of money in their checking account?
My credit union has a sign above the door as you enter that says, "YOU own this place." That sums it up for me!
I discovered some things this good article doesn't clarify:
1. Most credit unions are open to virtually everyone, even if they have names like "State Employees Credit Union," (SECU) - a choice, by the way, which ensures a lot of branches throughout the state. Sometimes you're qualified to join if a relative is a member at the time you join or if you attended a public college or community college in the state, etc.
2. At most credit unions, if you overdraw your checking account, there is NO fee or a small, perhaps $3, fee if savings can cover it.
3. At most credit unions, debit cards have NO swipe fees and can be used with NO fees at tens of thousands of ATM's nationwide. Mine from SECU of Maryland, can be used with no fees at over 70,000 ATM's nationwide, including those in every Costco, Target and at 5,500 7-11's. I use my debit card at stores like Aldi that don't accept credit cards.
Credit Unions do not pay income tax because they earn no income. A not-for-profit organization may earn money to pay it's employees and it's debts, but must return all other money to it's members. Banks do not return excess money to their customers, but rather give it to their shareholders (sometimes) and also waste it on very high bonus and salaries to executives who do no real work.
I have worked for a credit union for over 38 years and we have never paid high salaries to our officers and never paid huge bonuses to them, either. We are extremely connected to our members as well. Sure, everybody makes a mistake now and again. There are (former) members who have nothing good to say about us, but overall, we server our membership extremely well. in 2013, we returned 12 million dollars to the membership as an extraordinary dividend!
I have NEVER been overdraft with my CU, and have enjoyed many benefits since joining. I'm waiting until I find a full time job, and I'm going to refinance my car with them.
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