By BankingMyWay Staff
Big banks have borne the brunt of the blame for America’s ongoing financial crisis. As the government continues to bailout institutions big and small, and with dozens of banks failing in 2009, many consumers are starting to reconsider their banking relationships, and looking for other alternatives.
That makes now a good as time as any to consider the benefits of joining a credit union. Most Americans are eligible to join at least one credit union because of where they live or work. In many circles, credit unions have a negative reputation for offering limited, unsophisticated services. But over the years, credit unions have dramatically expanded their services and many now rival even the largest national banks. In addition, credit unions offer members some distinct advantages over the big banks.
The main difference between credit unions and banks is their ownership. Both banks and credit unions are owned by shareholders, but with credit unions, the shareholders are also the members. As such, a credit union has a fiduciary responsibility to its members. Additionally, credit unions are non-profit institutions. Unlike banks, which are for-profit, they do not have to focus on producing returns for shareholders. Instead, they can focus on providing as much value as possible for members.
Credit unions often offer lower interest rates on loans and higher interest rates on interest-bearing accounts than banks. According to the National Association of Federal Credit Unions’ daily loan/savings chart, a 48-month new car loan carries an average interest rate of 6.75% when issued by a bank, but the same loan carries an average interest rate of 5.42% when issued by a credit union; BankingMyWay’s national average on a 60-month car loan is 6.81%.
Likewise, the average rate on a 12-month $10,000 certificate of deposit (CD) from a bank is 1.79%, and the same CD from a credit union has an average rate of 2.39%.
In addition to better rates, credit unions typically provide more focused customer service and more free services. For example, many credit unions offer free seminars for members on various financial topics. On the flip side, banks count on a chunk of their revenue coming from fee-based services, for which many credit unions do not charge.
Because credit unions have a limited membership, they are not bound by as much bureaucracy as large national banks. For instance, it’s not unusual to renegotiate the terms of a loan with a simple phone call to a credit union while it could take several levels of approval from a national bank.
Convenience is one area where banks may have credit unions beat, however. Credit unions usually have few branch offices for members to choose from, and they typically have a limited ATM network. Customers of national banks like Bank of America (Stock Quote: BAC), Wells Fargo (Stock Quote: WFC) and Citibank (Stock Quote: C)can find ATMs throughout their area and even nationwide, while credit union members are typically limited to banking in their local area. There are some networks, though: credit union members whose unions are part of the Co-Op Network can use over 28,000 no-fee ATMs nationwide, including over 5,000 in 7-Elevens.
Additionally, online banking services provided by credit unions are usually inferior to those provided by banks, and many credit unions do not offer online banking at all.
Finally, it’s important to note that not all credit unions are insured. The vast majority are protected by the National Credit Union Administration (NCUA) (similar to the FDIC) up to $250,000, but a small percentage are not covered.
Thinking of joining a credit union, but don’t know where to look? The Credit Union National Association has an online credit union database, which lets you search by zip code. And Findacreditunion.com has a more comprehensive search site, along with some general information on how credit unions work.
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