Should I Join a Credit Union?

Here's a piece from the Wall Street Journal that discusses the advantages of credit unions:

"Credit unions very often beat their banking counterparts in terms of offering lower rates on loans and higher rates on deposits," says Greg McBride, economist for Bankrate.com. "For a consumer who's shopping around for the best deal, that has to include looking at credit unions."

They also list steps to take for selecting/joining a credit union:

• Go to creditunion.coop, the Web site run by the trade organization, to find credit unions near you.
• Look for credit unions you are allowed to join.
• If you are concerned about safety, pick a credit union where deposits are insured by the federal government through the National Credit Union Administration (NCUA).
• Before signing up, also look at the range of services on offer as well as the number of branches.
• If you need credit and debit card, make sure it offers them.
• And be willing to cherry pick.

I've had several comments on FMF about the advantages of credit unions and I've considered joining one in the past. But I currently have free checking at Chase, don't keep much money/savings in the bank (I transfer it to Vanguard once it's in my account), and I have/need no loans. Are there any other reasons I'd want to join a credit union versus my current bank? I really can't think of any given the way I do my banking.

Your thoughts?

Comments

[IVSPORT]

Pardon the elementary question but what exactly is a credit union? What are the advantages/disadvantages compared to checking/savings/CDs?

[FMF]

IVSPORT --

http://en.wikipedia.org/wiki/Credit_union

[Foobarista]

Basically, they are nonprofit "banks". They typically have higher rates on savings than most banks at lower levels. My credit union's rate on standard savings is 3.2%, which is slightly less than e-bank top rates but it is with a brick-and-mortar place where you can do deposits and such without worrying about the internet.

As for things like ATMs, most credit unions are in a co-op group that lets you use each other's ATMs, as well as any 7-11 ATM, for free.

We keep our "pre-invested" money there until we figure out what we want to do with it, as well as our tax fund and emergency funds.

We also recently did a refi of our mortgage there and got a 4.625% fixed on a 15 year note (from a 5.875% fixed on 30 that had 24 years left).

"Credit unions differ from banks and other financial institutions in that the members who have accounts in the credit union are the owners of the credit union[8] and they elect their board of directors in a democratic one person-one vote system regardless of the amount of money invested in the credit union" (Wikipedia)

They basically offer the same services but are only open to certain people (employees of certain companies, etc) and sometimes offer better rates. I had never heard of them until I got married, and my husband had an account at one. We have kept it even though we use other banks for most of our finances. Recently though, they are offering a 4.75% 15 year fixed rate mortgage, so we are thinking of refinancing through them.

[LotharBot]

My credit union offers 7.5% on the first $500 in both checking and savings, and typically has higher CD rates than nearby banks.

It's not like the credit union has access to something magical to let them produce that money. Banks produce the same amount of returns, they just go to shareholders instead of customers.

If you can find a credit union you can join that offers you good rates, do it.

[Rick]

how do i ask you a question on a separate issue?

[justin]

I am a credit union member, but the checking/savings rates aren't really any better than the standard bank. The reasons I joined were that members get really good rates on auto loans and deposits go in immediately, regardless of the time of day the item is deposited. None of the rest of our local banks do that. I got burned several times by my previous bank not crediting deposits for two and sometimes three days later.

[FMF]

Rick --

Send me an email:

http://www.freemoneyfinance.com/2005/04/free_money_fina_4.html

[rdub98]

I work for a credit union and I wouldn't go back to a bank if you paid me.

Everything stated in the comments are generally correct. All Federally chartered credit unions are insured by the NCUA or National Credit Union Administration. This is the equivalent of the FDIC for banks. The insurance coverage is the same $100,000 for accounts and up to $250,000 for IRAs.

We are "not-for-profit", not non-profit. Not-for-profits still make a profit, but those profits go back to the members in the form of lower rates on loans and generally higher rates on savings and investments. Additionally, credit unions typically have fewer and lower fees. Banks will typically fee your account to death. Credit unions don't typically do that.

What also helps us stand out from other financial institutions is the level of service that we provide. We truly care about our members and typically bend over backwards to help where we can.

So if you can find a credit union to join, by all means, do.

[Matt]

I used to gasp when my friends over the years would tell me that they now had free checking. I have used a Credit Union since my teenage years b/c my mother was civil service. I had no idea that other people had to pay for using checks. I never had to pay for anything fee-wise.

The only downside is that credit unions are a little behind the times in the sense that they didn't offer a debit card until a little while after the major banks did - but when they did offer one their fees were of course lower.

I can't recommend a CU more if you want lower fees and higher return rates - if you want the latest trend then you'll have to wait but I never cared. I never realized how spoiled I was until I became an adult and my in-laws and friends started cluing me in to the almost robbery going on in the private banking world.

[Sheila]

I've been a credit union member for nearly 27 years, and in that time I've only had to pay one fee which was for an overdrawn checking account (and the credit union covered the bad check). In my opinion, that's the advantage of a credit union: they don't screw with you the way most banks do.

Credit unions tend to have helpful programs that banks don't have. For example, mine has a car buying program where they work a lot of different dealers to get buyers really good deals on new cars where they do all the work. This is another aspect of the "not getting screwed with" thing.

Last year my credit union made more money than they were expecting so they credited everyone's savings account based on how long they've been a member. I got $20 for doing nothing; I don't think many banks do that :)

[rwh]

Nobody has mentioned that many credit unions are offering around 5% or better on checking account balances. You have to sign up for direct deposit, and have a minimum number of debit transactions (not ATM withdrawals) per month to qualify. At my CU it's 12/month. We currently keep 15-20k in the account an it's earning $70-$80/month in dividends. This year that's about the best return on any of our investments.

Our CU is very competitive on loans.

[Cara]

What's the minimum balance on your checking and savings accounts at your bank? At my credit union, I have a $10 minimum savings balance and a zero minimum checking balance. They also don't charge me fees for anything, it seems.

[Rick]

I agree with the general sentiment with the above comments, but one cannot just say "Credit Unions are better than banks." You have to evaluate *your* needs, and what *you* need out of a bank/financial institution. Frankly, many times a bank is a better solution. I personally have a number of accounts with both credit unions and banks, and they all have their pros and cons. One bank -- that incidentally is the closest financial institution to my house -- is open 7 days a week, 12 hours a day. There are Chase branches on every other block it seems. Meanwhile, the credit union I've been a member of for 12 years is only open 9-5, which is difficult to get to since I work those hours. My CU does offer better rates than the banks, but I can get even better rates online.

So the point of all that is to say that in my case, the CU hardly offers any real benefit to me, and it may actually be better for me to switch to a bank that is more convenient. The case is different for every person, though. You just have to evaluate your options and see what works best for you.

I go through this debate with myself quite often. I joined a fed gov credit union when I was a paid intern and have maintained that account for the past 12 years. The advantages it gives me: (i) they don't fee me to death; (ii) minimum balances are not an issue; (iii) I can't easily spend the money (which for me is an advantage as I precisely don't want to spend my money that I put there) and (iv) they offer me slightly better rates.

(iii) can be a problem. And be wary of the credit-union coop location. Your credit union may be a member, but you might get charged a fee for using it. As for (iv), from my experience the rates are marginally better. I think previous commenters are right; loan products might show a far better gain.

But I do get better customer service at my credit union than at the back where I am a private banking client. And there's something positive to actually having a say, if a really limited one, in how the place is managed.

But I know of no credit unions that really compete with the rate offerings of the INGs of the world.

[Anitra]

Generally (though not always), credit unions have lower fees and better interest rates. The CU that I'm part of will even cover OTHER banks' ATM fees (up to a certain amount each month).

I've been a member of two different credit unions, and both of them would pay a dividend back to their members at the end of the fiscal year - based on how much money/debt you had with them and how much profit they had made that year.

Personally, I first opened an account with a credit union (same one my parents did most of their banking at) because they were the only place that would let me get a checking account at the age of 17. I was going off to college, needed to be able to pay my own bills, and my parents weren't enthusiastic about co-signing for something that should be my responsibility alone. Other banks I looked at wouldn't let me write checks even WITH a co-signer. After seeing the fees and hassle that my college peers went through with their banks, I was glad I stuck with the CU - even though the closest branch was 400 miles away, it was never inconvenient. I could use any ATM for withdrawals, and I had postage-paid envelopes to use for deposits.

[JeffrO]

Have NEVER paid for checking, no matter how low my balance...THANK YOU Credit Unions! I see folks commenting that CU's are usually a little slower to adopt technology, offer Debit Cards, etc. While normally true, I must add one exception -- First Tech Credit Union in the Pacific NW was one of the first financial institutions to offer online banking....BEFORE the internet explosion. They gave me a debit card in the early days, all the while my "Bank President" Uncle scoffed that the Dbt card was a passing fad....

While some CU's are small, even a bit folksie, check around. There are others just as sophisticated as the best banks.

[Bifocal]

It makes sense if it is conveniently located. I find most credit unions are off the beaten path.

[Foobarista]

As for tech, my CU also has had online banking since 1990. In those days, you had to have a custom piece of software and a 2400 baud modem, but it worked.

One other small, but useful, feature is each branch has a free Coinstar coin-counter. I use it about once a year.

And it's savings rate today is 0.2% higher than ING...

[Lauren]

I opened an account through my dad's credit union, because he is former military and they get access to excellent benefits. I get grandfathered in to organizations serving military personnel since I am his daughter (which then extends to my husband, and then to our kids when we have some, and so on). I also have car, property, and renter's insurance as well as my credit card through USAA, another organization for servicemembers and their families.

Anyway. The credit union I joined only required me to put $5 in a checking account in order to qualify for loans, so I got an excellent car loan with a very low interest rate that I have quickly been able to pay off.

[Ginny Brady]

I am on the volunteer board of directors for a small credit union in Northern NYS. Credit Union Boards are made up of volunteers who oversee the policies of the credit union. Our board also made it a priority to develop a blog which allows members to have direct access to the board. We use the blog to discuss current credit union information and trends on a local and national level. I don't think you would find bank boards opening themselves in that way to customers. Our credit union attempts to tailor products to the needs of members. One of our concerns has been the recent increase in home heating fuel for members. During the month of August, we offered members a 0% loan product to help them with upcoming heating costs. We are now offering another loan product that offers a low rate (can be as low as 3.75%) for home heating fuel costs.

[t3chvest]

For me, it's always about the customer service. I've only had Wells Fargo and Bank of America besides CU's though, so maybe I am being unfair.

But yeah, the service I get is always 100x better and they actually care about helping you. My CU's have gone above and beyond helping me everytime whether it was deciding on a loan, tire-kicking cars, etc. Plus I DO have loans and credit lines, so it works out especially nice for me. Free checking and free checks rule too =)

The ONLY thing I want for at my CU's is the BoA initiated savings program where it rounds your purchases up and moves the change over. That's pretty cool.

[Wayne]

I have been a member of a credit union for 20 years. I opened a bank account, but tired of the mergers and the constantly changing credit cards with each bank merger. I live overseas and everyone else has to pay $2-3 fee for each ATM use. I am charged .50 after the 6th transaction in a month.

[Rev]

I have basically the same setup as you but at a credit union. The main advantages are the customer service. Its much easier to get help on all sorts of issues. Its one of the few support lines that I don't dread calling.

Also many CUs are members of the coop ATM network. It means you get no ATM fees at any credit union in the network, the network also includes all 7-11 atms. If you hop on google and check it out you can see that there is a TON of ATMs in every city.

Overall fees are usually lower as well. And when you open an account you usually have to open a "share" savings which is technically part ownership of the CU. You get to vote on board members, etc.

[Anthony Whyms]

On the vendor side of the table, my company prefers to work with
credit unions and their members because we usually get better
FICO scores and stable payment histories.

As an auto-buying firm, we spend a lot of time locating the best
deals for our credit union partner's members.

It's nice to know that we don't have to play games figuring out
what a member can afford because he/she are usually pre-qualified
by the credit union, leaving us to just get the member's vehicle.

So in this current economic downturn, we give a preference to
anyone who is a credit union member and encourage our non-credit
union clients to sign up with the credit union that services
their community.

It's a win-win scenario for all concerned.

[BenG]

The one thing that no one seemed to point out -

Most credit unions are members of the Shared Branching network. (http://www.cuservicecenter.com/) This means you can walk into the local credit union in pretty much any city in the country and do business with your local credit union. My personal credit union has around 4 branches that are literally a thousand miles away from my house. This hasn't been a problem over the last 5 years. I can do deposits and withdrawals like it was my home CU.

That's my response to the BoA/Chase/Wells Fargo "my bank is Sooo convenient" haters.

[SAHM]

OK, I'm going to be the one on this post that is anti-credit union. Actually, I'm not anti-credit union totally, just anti-my former credit union.

I was a member of a CU like my parents from the time I had a savings acct as a kid until I moved out of state 8 years ago. Even in college when I didn't have a convenient branch, I could usually deposit my paychecks at another CU ATM with no problems. Same with my hubby. Then we moved 500 miles away. There was only one CU choice, so we went with them. They screwed us from the first day on. We had a certified cashiers check sent from our old CU. We were told it would be a 3day hold on a new acct- not a problem. Until on the 4th day I went to cut a check for our downpayment on our house. They wouldn't let me have my money until I went "up the chain". Should've learned, but I didn't. It took 8 more years of frustrations, fees being charged to my checking when I quit work because I didn't have direct deposit, refusals to clear checks in a timely fashion (I'd been a member for more than 5 years at that time) and more. We moved again (local), and fortunately is was far enough from the CU, my husband agreed I could look at banks. We went with Wamu free checking. It didn't even require direct deposit, a minimum balance, a separate savings account, AND they gave me free checks. PLUS that now meant my business and personal accounts were together.

We keep our savings/emergency fund in a high yield checking, and about the only thing that is done through this account is paying bills and living. I have found better rates for mtg through other sources.

If I still lived in FL near my family, I'd switch back to their CU. BUT, I certainly will NEVER just automatically consider a CU again. I'll research all my options. I think some of the banks are FINALLY understanding why some like CU's so well.

[Phil H]

They are excellent choices for auto loans. I have been able to reduce my interest cost on my car mote by paying every two weeks versus once a month. The savongs was $50 a month which resulted in savings of $3,000 over the course of a 5 year loan.

[Donna]

Another plus about credit unions is their failure rate is far lower than banks. If a credit union is going to fail, they are usually absorbed by neighboring credit unions before the failure can occur. They work cooperatively and try to avoid the use of CUNA insurance as much as possible. The majority of credit unions out there did not get involved in the subprime mortgage mess, either. These are not insignificant issues in today's financial world.