My Credit Union Hosed Me

A reader left the following comment on the post where I gave an update on my credit union:

Within months, they will drop the rate at least 1%. It's the MO these days for all banks and CU's. You just did a lot of work for a teaser rate.

No sooner was the "ink" dry on that comment (two days later) when I received the following notice from my credit union (FYI, my interest rate was 4%):

Max Checking Rate Changes to 3%

The U.S. and West Michigan economy continue to suffer from uncertainty. Although there have been glimmers of a recovery, we continue to see high unemployment and slow job growth. As a result, the Federal Reserve recently announced plans to keep interest rates low for the next two years. While this is great news for those looking to borrow, it means continued low rates on deposit accounts. Given the current rate environment, we are lowering the Max Checking interest rate to 3.00% APY effective October 1, 2011.

Since Max Checking launched in July 2007, there has only been one change to the interest rate in the previous four years. And during that time there has never been a change to the other features, benefits or requirements of the Max Checking account. We remain focused on delivering you, the members, the best value in banking, and at 3%, Max Checking continues to be an exceptional value!

They included a chart that detailed what they offer versus what's offered by banks in the area. The results:

• My credit union: APY: 3.00%; Minimum balance required: $0
• Huntington: APY: 0.20%; Minimum balance required: $15,000
• Fifth Third: APY: 0.10%; Minimum balance required: $2,000
• Bank of America: APY: 0.10%; Minimum balance required: $10,000
• Chase: APY: 0.01%; Minimum balance required: $15,000
• PNC: APY: 0.01%; Minimum balance required: $1,500

Here are my thoughts on the situation:

• I don't think the reader was correct in saying this was an intro rate and they bait and switched me. I think there are legitimate reasons the rate went down to 3%. So to say they "hosed" me (which I did in the title) is a bit over the top. ;-)


• That said, I'm not happy about the change. My earnings just got cut by 25%.


• They're right, there's nothing around here that can compare to even 3% earnings on a checking account (I've checked.)


• I'm still earning much more than it's "costing" me (in lost credit card cash back). For specifics, see the update on my credit union post.


• I was thinking of opening up another account with them (as suggested by a reader) to see if I could get 4% on another $15k. But now I'm not sure it's worth the effort (it would mean I'd need to make 20 debit card charges per month between the two accounts and I'm not sure I'm up for that.)


• Will the rate ever go up? If the economy improves, will they take the rate back up? Who knows?

The comments on their website were along the lines of "we hate to see the lower rate, but we still love you." What is it with people and their credit unions? Why are they so enamored with them? It's just like a bank but with better deals, right? ;-)

Comments

[Kris @ Everyday Tips]

I have been looking into the credit union I think the reader is talking about, and the rate did drop, but so did everyone else's that I have been watching. I think the four percent was too good to be true for long.

[20's Finances]

Wow, that is quite unfortunate... but as you said 3% is still 3%. I grew up with my money in a credit union. I absolutely loved it. The service was tremendous! If I didn't have a deposit slip, no worries. They would take care of it for me as long as I knew my account number. I just told them what I wanted to do and they were wonderful. Now, when I go into my national bank, if I don't have a deposit slip, I have to get out of line and fill it out before they will help me. I don't know that all credit unions and national banks work this way, but I have heard from many others that credit unions value your service more than others.

[Brian]

Don't forget that a credit union is non-profit and owned by the members/customers. there are not the same incentives as in a bank to create profits for shareholders. The incentive is to create good service for members.

There is a reason that the CU's deposit rates are higher than any competitor bank. The CU is putting its profits into returns for its members. Remember also that a deposit account is a liability on the credit unions banks. They need to produce enough income to cover that liability. Obviously that income is not coming from loan interest alone, but they are still providing a great return to members regardless of loan interest rates.

[Brian]

In the second sentence above, I meant "credit union's books". Sorry.

[Mike]

"The service was tremendous! If I didn't have a deposit slip, no worries. They would take care of it for me as long as I knew my account number. I just told them what I wanted to do and they were wonderful."

I've used CUs in the past and like them fine, but local branches of Eeeevil national chains can have fine service too.

I can't remember the last time I've had my deposit slip, and I deposit two checks a month at my local Wells Fargo.

Their interest rates are bad though, so I just use them as a gateway to ING and to pay my mortgage.

[billyjobob]

Yeah, bummer that they lowered it to 3%. But 3% is still really good right now, considering what everyone else is offering. I'm with a CU that I do love. But they're not paying anything worth getting excited about. Right now its just a place to park the money before it goes somewhere else.

[Rod]

I have been with my Credit Union nearly 20 years. I like them. ALOT!. As stated above the reason is the service. The service there is just so much more than whatever I can get anywhere else. And the plus is that your credit unions payout if you are invested enough is to the members. Not to some "owner" of a bank. The members share in the credit union.

After being screwed by the Savings and Loans in the 80's and being treated very rudely at a Bank when I was just starting out. The Credit Union has been a breathe of fresh air.

[brooklyn money]

When I started a few years ago w/ these rewards accounts at 2 small banks, the rates were close to 4%. Now I think they are down to like 2%. But that still beats almost any other savings vehicle, including CDs.

[jeffinwesternwa]

A tip for a higher rate on CD's: many banks/CUs institue a 90 day interest "forfeit" if you break a CD before maturity, however, the rates on 5 year CD's STILL far outweigh say a two/one year, 6 mos or 91 day CD. Do the math, even if you may need the money before maturity, taking a 5 year CD and breaking it (with a 90 day interst penalty forfeit) will often result in more interest income than a lower rate CD :)

[billy]

From my perspective, 3% is sky high interest. Where can I find such an account? I'm a member of 4 credit unions in the DC Metro area and I've haven't seen any high-interest rate checking accounts.

[Bonnie]

3% is super high on rewards checking accounts these days. The rate is 1.25% at my credit union. A note, though, it's unlikely that they'll let you open 2 rewards checking accounts under your name. Otherwise, many people would do so and it defeats the purpose of having the $15K limit.