Should You Move Your Money to a Credit Union?

Alden Wicker
Posted

You wouldn’t normally think of credit unions as sexy or hip.

They don’t have glossy ad campaigns and beautiful branches on every street corner. Even their basic definition—non-profit financial co-ops—sounds boring.

But these days, more and more Americans are clamoring to join the club of credit unions because of their low fees, higher interest rates on savings accounts and lower interest rates on loans.

Credit Union

Because they are non-profit, credit unions are the only financial institutions that go out of their way to serve low-income clientele. But you’d be wrong if you think that’s the only group they serve. Anyone can benefit from the low-fee, low-rate products that credit unions specialize in. And in fact, many more people are.

After a furor erupted over new debit card fees announced by several commercial banks in September, 650,000 customers have switched to credit unions, depositing $4.5 billion in new accounts. (That’s the same amount as existing credit union customers across the country had been depositing in an entire month.) Those bank fees have since been rescinded, but the bad taste in many Americans’ mouths remains.

Just take the wildly successful “Bank Transfer Day” on November 5th, organized by Los Angeles small business owner and former Bank of America customer, Kristen Christian. This particular party, to which she at first invited 500 of her friends on Facebook, ballooned to 75,000 RSVPs within a month. On that Saturday, thousands of disgruntled customers closed their accounts at large institutions and sat down with a credit union employee to open an account. It’s too early to tell exactly how many people moved their money, but we do know that 54% of credit unions saw growth. 

Should you join the party? We spoke with Greg McBride, senior financial analyst at Bankrate.com, to see if credit unions might be a good choice for you.

Why You Should Go With a Credit Union

The Same Basic Financial Services

Credit unions may have different names for their services, like share accounts (savings accounts), share draft accounts (checking accounts) and share term certificates (certificates of deposit), but they work the same way bank accounts by different names do. Credit unions also offer online banking and credit cards. And if you’re worried about finding an ATM when you need it, McBride says, “Many credit unions belong to large surcharge-free ATM alliances that open up thousands of ATMs around the country.” These networks have even more ATMs then Bank of America or Chase.

Lower Fees and More Savings

Because credit unions are not-for-profit (unlike banks), they use excess earnings to give their members lower fees, higher rates of return on savings accounts, more affordable loans or new services. Compare the median annual credit card fees for credit cards—$25 at credit unions and $59 at banks—and the median overdraft fee—$6 at credit unions and $10 at banks. And more than three-fourths of credit unions offer no-strings-attached free checking, while only 45% of banks do. As of late September, the average interest on a savings account at a credit union was higher than at a bank: 0.23% over 0.17% for a $1,000 savings account, or 0.28% vs. 0.18% for a $2,500 money market account.

You’re the Boss

Instead of shareholders owning the bank, each member of a credit union owns a piece and gets one vote—regardless of how much money he or she keeps at the union—to elect the Board of Directors. In turn, the Board of Directors decides the interest rates, fees and other practices. So if you don’t like what is going on, you can vote the offending board member out. Plus, having local owners instead of shareholders running the show changes the timbre of service you get. Here’s why.

Better Customer Service

Since “customers” are technically owners, your local credit union will likely get to know you and work with you to meet your needs. All that individual attention means that credit union customers tend to be a pretty satisfied bunch: Almost 90% of credit union clients plan to stay, while only 60% of customers at big banks plan to do so. 

Why You Should Think Twice

Payday Loans

We are never fans of payday loans, which are personal loans that come with exorbitant interest rates that take advantage of low-income customers and plunge them into a cycle of debt. For the most part, credit unions offer low-cost, financially healthy alternatives paired with counseling. But a few credit unions, 25 to be exact, are doing exactly what they purport to save customers from: handing out loans that charge 300% or more. So, be sure to avoid any credit union that is on this list, and if you must take out a personal loan, don’t agree to one with interest rates above 28% per year or a high “application fee.” A reputable credit union with your interests in mind will offer a loan with an interest rate of around 10%.

Not Always Federally Insured

Bank accounts at both commercial banks and at most credit unions are insured by equally safe government bodies (the Federal Deposit Insurance Corporation, or FDIC, for commercial banks, and the National Credit Union Administration for credit unions). But notice we said “most” credit unions: Watch out for the few state credit unions that have private insurance, because that is not as safe as a government guarantee. For instance, if several credit unions insured by one private company fail at once, that insurer may not be able to cover the deposits (as happened with American Share Insurance in 2009 and 2010). So, make sure your credit union is federally insured. As Bankrate’s McBride says, “The presence of federal deposit insurance means the risk of the institution failing is their problem—not your problem.”

Late on the Technology Curve

If you’re a tech/smartphone junkie, you should know that credit unions tend to adopt tech innovations later than commercial banks. For instance, many of them are still in the process of developing mobile banking services and mobile-phone check depositing. It’s not as though they’ll never adopt these innovations. They just tend to get to them a bit later. (For example, LearnVest’s My Money Center is unable to link every single credit union, though it does support many.)

Members Only

Unlike a regular bank where you can walk in off the street and open an account, many credit unions have specific requirements. Some are affiliated with the military, some with universities, some with large employers or certain industries and some require that you be part of a certain church or club. Some just ask that you live in a certain town or area. You’ll have to do some work to find one you can join, though it should be possible for almost anybody. You can start by searching for a credit union by geographic location or your affiliation to an industry or employer with three websites: NerdWallet.com’s Credit Union Finder, aSmarterChoice.org and CULookup.com.

Why You Shouldn’t Go With a Credit Union

Find Out More About Credit Unions

Compare notes with other LearnVesters in LV Discussions!Share Away

You Tend to Relocate Often

This is only a downside if you want local branch access (and if you’re searching for a mortgage or car loan, you likely will): Because many credit unions are affiliated with a location or an employer, if you’re young and switch jobs or move before settling down, your credit union will no longer be nearby. (But you can never be kicked out for moving. “Once you’re a member, you’re always a member of a credit union,” says McBride.) Signing up with a national bank like Bank of America allows you to move to almost any new city, with the only chore being changing your mailing address online. But if you’re a member of a local credit union, move to a new state and want in-person branch access, you’ll have to search for a new financial institution and move your account. (Also, some credit unions belong to networks that allow their customers to walk into a partner credit union and use it as if it were their own.)

No Wealth Management Services

“If you are a high-income, high-net worth consumer that needs a lot of personal banking options like private banking services and wealth management, credit unions cannot provide that,” says McBride. But for people in need of all the basics—checking account, savings account, car loan and mortgage—a credit union can work just fine.

The Bottom Line

As with any financial decision, the choice you make should be right for you. That means you should be fairly certain before joining a credit union that you won’t need the wealth management services that they lack, or that you won’t be moving locations anytime soon, or that if you do move, you’ll be satisfied with online banking, etc. And vet your options carefully. As noted above, some credit unions are better than others.

Above all, do your homework and figure out whether a credit union or bank better meets your needs, in terms of services, rates and locations. As McBride points out, “Credit unions tend to offer higher rates on deposits and lower rates on loans. So for consumers who are seeking the best deal, credit unions need to be included in your comparison shopping.”

  • http://senseofcents.blogspot.com Michelle

    I love my credit union. I’ve been with them forever. They offer everything that a bank does, and more because they have great customer service.

  • Anne

    I joined a credit union three years ago and I am kicking myself for not doing it sooner!  One thing you forgot to mention, credit unions also offer credit cards, without a lot of the dirty tricks that commercial credit cards pull, and often with very favorable interest rates. They also offer student loans, Christmas clubs, and so on.  My CU has a (relatively) high-interest checking account that pays triple what most bank savings accounts pay – you just have to make a certain number and kind of transactions online and receive online statements, and there’s no minimum balance.

     And I love their old-fashioned emphasis on savings and thriftiness – for instance, when I pay my car loan online or by mail, the forms have a place for adding an additional amount to my savings account at the same time.  And they make it really, really easy to find out my loan payoff or pay extra money toward my principal.  They even have a place on the online credit card payment form where I can designate that I’d like to pay a certain percentage of my balance.
    My credit union even offers a free program called Balance in which financial advisors will look at my finances and give free advice on reducing debt and increasing my financial health. 
    The only downside is that I have to drive some distance to go to my CU’s bricks-and-mortar branch, but I can make snail-mail deposits, so it’s fine.  It’s just like the old-fashioned personal service local banks used to have before they were swallowed by the monsters.
    I heart my credit union!

  • http://theWardrobeCode.com Nicole Longstreath

    Just chiming in to say that I love my credit union. I used to bank at B of A and the other big, commercial banks and I was always thinking of moving my money somewhere else. It’s different at a credit union; the customer service is much better, interest rates are lower and it feels like I bank at a small town bank in the big city.

  • Kaylacammack

    I have been with a credit union for over five years now and they are absolutely wonderful.  I also have a credit card with them.  Their rates are lower than most places around here.  They offer a big line of services including savings, CD’s, auto loans, mortgages, HSA’s, child college savings accounts, etc.  I don’t believe they have branches outside the state of Idaho so if I move, I would have to switch banks which is the downside.  Only thing in this article that I noticed is the overdraft fees only being an average of $6 for CU and $10 for commercial banks. I believe that should be higher.  In my experience, credit unions have been between $15-$20 and commercial banks $35+

  • kelseyb32

    I work for a credit union and have been in the industry for about 7 years (and been banking with one that long too!). I appreciate the article and clarifying why credit unions are great, but just wanted to add that many credit unions belong to a shared branching network which allows you to go to another credit union and access your funds (aka if you move frequently). In addition, many credit unions do in fact offer wealth management service. No matter what, it’s important to find a financial institution that meets your needs. Like the article says, it’s important to do your homework.

  • Jen

    I’ve been with a credit union for about 10 years now (since I was 15!) Originally opened because they would allow me to have a Visa debit card at that young age, so that I could learn to manage my money wisely. I’m a member now of 3 different credit unions- because I’ve moved several times, but each offers a different strength. For instance, that first credit union I joined still has the best interest rates on savings accounts, and even offers interest on their free checking account! The second one I joined offers wealth management services, and is where I have my retirement and investment accounts, and also has great credit card rates. The 3rd credit union, located where I now live, gives me convenient local branch access and is where I have the account that is joint with my fiance. Also, if there isn’t a credit union near you that has good policies, a lot of credit unions will allow you to become a member if an immediate family member is a member, so look where your parents and siblings live as well, if you can do with online banking rather than in person services. 

    • http://senseofcents.blogspot.com Michelle

      I’m like you, I opened mine at 14 because they would let me get a Visa debit card!

  • http://michievouskitty.blogspot.com Stephanie

    As much as I looove the idea of switching to a credit union, I found myself sticking with BoA based entirely on one online banking feature:  The ability to mark transactions as “reconciled” as soon as they clear.  My husband and I both have debit cards for the same checking account and it’s the only way I can accurately balance the checkbook.  I asked around at all the other banks in the area, and also checked out some credit union websites, but not a single one has that feature.  If I’d found a single other bank/credit union with that online banking feature, I’d have switched in a heartbeat… But I’m not willing to risk the overdraft fees when I inevitably miss a transaction and think we have more money in the account than we actually do.  :- 

    • Lisa

      I don’t know where you are, but there’s an awesome credit union in Colorado called Elevations. Their website is better than Chase’s, in my opinion, and they just built a Mint.com-like tracking system into the site.

      • http://michievouskitty.blogspot.com Stephanie

        Hmm… yeah, I live in NJ, so I don’t think that will work. ;-)   Thanks for the suggestion though! :-)

        The only credit unions in my area are very low-tech, with bare-bones features in their online banking… Maybe one day they’ll catch up with the times!

  • guest

    Well, we’ve been credit union members over 10 years now. I do all our banking “on line”, direct deposit, move $$ between accounts, pay bills, etc, pay NO fees, even have a home improvement loan with a very low interst rate. The only reason for going into the office is to move $ into my IRA. ALL banks make you sign for that service! They offer all the services of a “big box bank” and none of the fees!

  • Casggp

    I have both……I love the convenience of my large bank because I’m on the road a lot and finding a branch or ATM is really easy. I’m also a member of a local cu but get annoyed by their little random fees – I stay with them because they are based in my hometown which I always return to eventually. I also have an old cu out-of-state that I love, but the local associate banks that I use to access them are very limited in services. :(

  • katyD

    I gave up on major banks almost 20 years ago when B of A wanted to charge me $25 to replace my ATM card after it got stuck in their malfunctioning ATM machine. That was proceeded by a variety of nickel-and-dime nuisance fees that suddenly hit my “free” checking account. I withdrew my money, joined a credit union and I have never looked back. I get better interest, better service, no ATM or checking fees whatsoever. I have had nearly all of my car loans and even my mortgage through my credit union. The major banks are for suckers and greedy pigs, and they can have them. LONG LIVE CREDIT UNIONS!!!!!!! 

  • http://profile.yahoo.com/FKHRZS7QO5IAW5B2BUV2LELPA4 Linda

    My credit unions must be ahead of the curve. They have had phone and internet banking for many years. I recently dropped one of the three credit unions that I had accounts in because it wasn’t as good as the other two.