A credit union is a non-profit financial institution that is owned by, and provides banking services to, its members. When you have money on deposit at a credit union, that constitutes your ownership share of the credit union.
Traditionally, in order to belong to a credit union, you had to belong to the organization associated with it, such as being a member of a certain union, an employee of a certain company, or an alumnus of a certain university. However, nowadays there are also credit unions that are very loose about membership where something as simple as living in a certain area entitles you to become a member.
(Among the services available at the Credit Union National Association (CUNA) website – which is the trade organization for credit unions – is a credit union locator to help you find a credit union for which you might be eligible.)
In many ways, credit unions are the same as banks. Accounts at 98% of credit unions, for instance, are insured by the federal government up to the same $250,000 as at a bank. At the same time, a credit union offers many advantages over a conventional bank.
To begin with, as mentioned, credit unions are non-profit. That means for the most part they weren’t part of the subprime mortgages fiasco, takeover bids, deceptive and expensive marketing campaigns, outlandish executive bonuses, government bailouts, and all the rest that have rendered today’s bankers the equivalent of cartoon villains in many people’s minds. Furthermore, as non-profits, credit unions are exempt from most federal and state taxes.
But perhaps hating the profit-seeking shenanigans of banks holds no political appeal for you. You like capitalism just fine, and you don’t find the fact that banks are doing all they can to maximize their profits the least bit distasteful. If anything you’re suspicious of goody-goody non-profits. Do credit unions have anything to offer you?
Well, as a good capitalist, you should appreciate making decisions based on what’s better for your bottom line. Given that, let’s compare credit union and bank average interest rates: (All statistics from Datatrac, from December 2008)
Credit card:
* Credit Unions: 11.64%
* Banks: 12.76%
48 month new car:
* Credit Unions: 5.46%
* Banks: 6.91%
48 month used car:
* Credit Unions: 5.72%
* Banks: 7.50%
36 month unsecured loan:
* Credit Unions: 10.60%
* Banks: 12.47%
HELOC mortgage:
* Credit Unions: 4.70%
* Banks: 4.90%
5 year ARM mortgage:
* Credit Unions: 5.54%
* Banks: 5.71%
30 year fixed mortgage:
* Credit Unions: 5.44%
* Banks: 5.58%
Savings account:
* Credit Unions: 0.68%
* Banks: 0.44%
Interest bearing checking account:
* Credit Unions: 0.48%
* Banks: 0.36%
Money market:
* Credit Unions: 1.22%
* Banks: 0.62%
1 year CD:
* Credit Unions: 2.93%
* Banks: 2.26%
Final score: Credit unions 11 Banks 0
Beyond interest rates, credit unions are far less likely than banks to nickel and dime you with nuisance fees. Most credit unions offer (genuinely) free checking accounts. Fees for things like overdrawing a checking account or being late with a credit card payment tend to be lower than at banks.
If you are not already one of the 90 million members of the over 8,500 credit unions in the United States, it might be worth your while to look into changing that. Credit unions have a lot to offer those who are looking for an alternative to their present bank.
Sources:
“Ditch your bank for a credit union”
“For Better Banking, Check Out a Credit Union”