Would a credit union be a better alternative for you?
"Early Show" financial contributor Vera Gibbonscompared banks and credit unions Thursday.
WHAT IS A CREDIT UNION, EXACTLY?
Credit Unions are not-for-profit organizations offering a wide array of financial services and they are owned by their membership. If you have an account with a credit union, you are a member and an owner. Membership is limited and you must be eligible in order to join. These requirements vary from credit union to credit union. As a member/owner, you have the right to both vote and run for the Board of Directors. You get only one vote regardless of how much money you have at the credit union and all of our directors are volunteers and receive no compensation for their service. This process guarantees that your credit union is looking out for your financial interests and not that of a small group of stockholders. Because of their not-for-profit, cooperative structures, credit unions are exempted from most state and federal taxes. Sometimes, credit unions will have their own credit union issued credit cards.
ARE MORE PEOPLE REALLY MAKING THE SWITCH FROM BANKS TO CREDIT UNIONS. IIF SO, WHY?
There are any number of reasons switching from a bank to a credit union is appealing right now. Generally, it's the fees, and the poor service. With everyone feeling the pinch these days, people have less money to shell out for bank fees that add up and less patience with bankers whose colossal failures have left the country in financial trouble. Consumers have had it, and they are walking out. A lot of people are finding satisfaction with credit unions which are (see definition above) non-profit financial Co-ops. Credit membership grew 11 percent in the third quarter of this year ALONE. Some 90 million Americans now belong to one.
SHOULD I JUMP ON THE BANDWAGON?
ANYONE CAN JOIN: When a lot of people think about credit unions, they are likely thinking, that is not for me, credit unions are for a niche group of teachers, church members, small communities. And yes, credit unions largely used to be that way. Today, though, credit unions are more accessible and less restrictive. Yes, you do have to have a common bond with other members, but the rules have relaxed greatly over years and membership today is often open to entire communities. There are credit unions large and small out there, and it's worth taking a look.
WHERE TO FIND A CREDIT UNION
If you think you might be interested in credit unions, go to culookup.com. When you are choosing, make sure deposits are insured through the National Credit Union Administration. The NCUA is an independent Federal organization that supervises and charters credit unions, as well as insures participant's savings. It insures deposits up to $250,000 (increased from $100,000, through at least the end of 2013), and it works for credit unions the same way the FDIC works for banks. Most credit unions are insured, but it's easy to tell if you are unclear. Just look for an NCUA blue sicker on the window of your credit union, or DO NOT BE AFRAID TO ASK when you are shopping around for which credit union is right for you. For more on credit unions, you can also call the NCUAS consumer line at 1-800-755-1030.
BANKS STILL AREN'T DOING A LOT OF LENDING, BUT CREDIT UNIONS ARE
Lending portfolios at commercial banks are down, and credit union loan portfolios are up. This means that if you are a credit worthy customer, and your credit history is in good standing, you stand a BETTER chance of getting a personal loan at a credit union than you do at a commercial bank. Why is that? Credit unions are not as tangled up in the sub-prime mess as the banks were, so they're in a better position to loan.
WHAT ARE CREDIT UNION RATES?
Banks as opposed to Credit Unions:
Car loan: 6.34 percent, 5.15 percent
Pocket the Annual Difference: $163
One year Adjustable Rate Mortgage:
4.73 percent, 4.32 percent
Pocket the Annual Difference: $439
In order to look at what credit union rates are, let's look at some examples. The average bank rate on a 48 month new car loan is 6.34 percent. At a credit union, it's 5.15 percent. The average bank rate on a home equity loan is 7.19 percent. At a credit union it's 6.02 percent. A one year adjustable rate mortgage or ARM at a bank is 4.73 percent versus a 4.32 percent at credit unions. This will give you an annual savings of about $439. And a new report shows that interest rates on bank issued credit cards are about 20 percent higher than their credit union issued counterparts!
At banks, the profits go back to the investors in the form of higher stock prices, and at credit unions, profits go right back to the members in the form of better interest rates which means lower rates on loans and higher rates on deposits. Bottom line-if you have several different products at a credit union, you can save (potentially) several hundred dollars a year.
SOME FEES ARE UNAVOIDABLE NO MATTER WHAT
Many fees can't be avoided no matter where you put your money, such as overdraft fees. Banks and credit unions combined collected nearly $24 billion in overdraft fees in 2008. But the good news about credit unions is the fees are typically LESS than the fees imposed by banks.
SERVICES AvAILABLE AT A CREDIT UNIONS
Larger, more established credit unions will offer you the same products and services you will find at a bank, from electronic banking to free ATM use. Services may be more limited for a smaller credit union, they may just issue credit cards through a big national bank. So if you get a credit card through a credit union that is issued by Chase, for example, you'd be up against the same practices and fees of Chase! In other words, no added benefit for the credit union customer. If you can, go with a more established, larger credit union to get the added benefits of electronic banking and ATM use. Make sure you talk to your credit union before setting up your account, so you have a full understanding of what they offer.