The recent publicity surrounding increased fees and ethical conduct at America’s largest banks has resulted in a consumer backlash. This has led many customers to move their accounts from large banks to small local ones. It has also prompted some individuals to consider credit unions.
Before opening an account at a credit union, it would be a good idea to understand how it compares to a bank.
Corporate Structure
Banks are for-profit business corporations typically owned by private investors and governed by a board of directors chosen by the stockholders. They may be community, regional, or national, and generally conduct business to maximize profits and share price.
Credit unions are not-for-profit financial cooperatives owned by their members and governed by a board of directors elected by those members. In many ways, they are like mutual banks, but credit unions are always non-profit. They are usually run locally, and generally conduct business for the mutual benefit and general welfare of their member owners.
Like banks, credit unions accept deposits from their members and use them to make loans. However, credit union deposits are regarded as purchases of shares, so account holders are actually part owners in the organization.
Banks’ earnings are returned to stockholders in the form of dividends and stock value. Credit unions’ earnings are returned to members in the form of lower interest rates on loans and higher dividends on savings.
Membership Requirements
Usually, there is a common bond among the credit union members, such as belonging to the same organization, working for the same employer or living in the same geographical area. About 25% of credit unions are community based, which means that many individuals meet the requirements to join a credit union in their area.
Product Offerings
Banks typically offer a broader array of services than credit unions. These offerings may include investment services, credit cards, foreign currencies, etc. Most banks offer more convenient access to your money nationally and internationally through large retail branch and ATM networks.
Credit Unions usually focus on consumer deposit and loan services, such as mortgage, automobile and personal loans. While credit unions also have retail branches and ATM’s, their availability is limited outside the local community. Some credit unions have linked their ATM networks to mitigate this problem.
Service Level
Many members claim that their credit unions provide better and more personalized service levels than their banks. These claims are backed up by consumer surveys such as the latest
American Customer Satisfaction Index survey. This survey showed that credit unions ranked 87 out of 100 in customer satisfaction versus a score of 75 out of 100 for banks.
Insurance
Credit unions and banks are backed by different insurance funds, but the coverage is very similar. Credit unions are insured by the National Credit Union Share Insurance Fund (NCUSIF) while banks are insured by the Federal Deposit Insurance Corporation (FDIC). Both funds are backed by the full faith and credit of the U.S. Government and in most cases account holders are insured for up to $250,000. Some individuals with multiple bank accounts may have higher coverage.
While a number credit unions fared well during the recent recession, they were not immune from the problems that plagued the banks. Two of the largest credit unions, U.S. Central Credit Union and Wescorp, were taken over by the federal government in March, 2009.
Which Should You Choose?
Most banks do tend to offer more products and easier access to your money, while credit unions tend to offer better rates and improved service for its members. How can you possibly choose? Fortunately, you may not need to. For some consumers, a good option is to use both.
For example, you can open a savings account and get a loan at a credit union while maintaining a checking account at a bank. This allows you to take advantage of the better savings and loan rates at the credit union while still providing access to large ATM networks and other products at the bank.
In fact, you can usually link accounts online so that you can easily move money between your credit union and bank accounts.
At the end of the day, the best choice will depend on your personal situation. We hope this post has explained some of the options available to you, but before you make any decisions, you should consult with your financial advisor to make the best decision for your individual circumstances.
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