Why Credit Unions Are a Better Financial Choice For Us Than Big Banks

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Credit Unions Make Philosophical, Financial SenseThose occupying Wall Street and other cities -- and those standing in solidarity with them elsewhere -- are disgusted with the status quo. One tactic they're using to get their point across to big business: closing out their accounts at major banks and moving their money to smaller institutions, including credit unions.

Big banks clearly aren't thrilled with customers' money walking out the front door. When a bunch of people tried to close out their accounts at a Manhattan branch of Citigroup's (C) Citibank, many were apparently arrested.

Fear not, though -- that reaction is an aberration. It's still a free country, and you can move your money if you want to. And credit unions are waiting with open arms -- and incentives.

Wooing Customers From Big Banks

With big banks adding new fees or increasing existing fees, credit unions have been able to capitalize on the growing discontent with the financial services behemoths. Bank of America's (BAC) $5 debit-card-fee fiasco alone is responsible for 20% to 50% of the new accounts at some credit unions -- and new accounts have been growing steadily in recent months.

That's because many credit unions are offering cash back or reward points for debit card usage, not fees. There are other perks, too, to get you to move your business. For example, the Co-op Services Credit Union of Michigan has been successfully offering $105 to those who switch to them from a regular bank. And credit unions are reaching out to business customers, too. FDIC data has shown bank business lending shrinking over the past year or so, while credit union commercial lending is growing.

Other Union Benefits

Dollars and cents aren't the only reason people are moving their money to credit unions. The fundamental setup of the system is vastly different from that at big banks.

While a bank is a for-profit business, aiming to maximize earnings for its shareholders, credit unions are nonprofits. While you're simply a customer of a bank, you'll be a member of a credit union, owning the whole thing along with your fellow members.

Many credit unions are on the small side, especially compared to entities such as Wells Fargo (WFC) and Bank of America, with roughly $1.3 trillion and $2.2 trillion in assets, respectively. Credit unions can be large, though, with the biggest one, which serves the U.S. military and Defense Department, sporting close to $40 billion in assets, more than 180 locations, and more than 3 million members. Other credit unions in the top 10 include ones serving State Department employees and Boeing (BA) employees. A credit union doesn't have to be huge to serve you well, though, of course.

Credit unions offer most or all of the services you need from your bank, and they generally charge lower fees, offer higher interest rates for your savings, and lower interest rates for loans. Compare these rates for June, 2011, the most recent data available from the National Credit Union Administration (NCUA):


Credit Unions
(national average)
Banks
(national average)
5-year CD
2.09%
1.78%
1-year CD
0.75%
0.59%
$1,000 in a regular savings account
0.25%
0.20%
30-year fixed mortgage
4.78%
4.64%
Classic credit card
11.64%
13.17%
Unsecured fixed 36-month loan
10.37%
11.98%
36-month used-car loan
3.88%
5.61%
60-month new-car loan
3.91%
5.22%

Traditionally, a credit union exists to serve only a specific population of people, such as those who live in a particular defined region, those who work or study at a particular school or company, those who work for the government, etc. But these days, many credit unions serve broader customer bases. Don't assume that the ones near you won't accept you -- ask them. Sometimes you might just need to join an inexpensive nonprofit organization in order to qualify.

When it comes to the downsides of credit unions, there aren't many:

  • They don't typically have a lot of ATMs of their own, but many credit unions are joined into a big network of machines, offering surcharge-free usage.
  • If you're afraid of giving up the FDIC coverage protecting your bank account, know that federal credit unions have their own protection against institutional failure, with the National Credit Union Share Insurance Fund (NCUSIF) insuring accounts up to at least $250,000. (Just be sure that any credit union you consider is among the vast majority covered by the NCUA.)

It's hard to beat the benefits of using a credit union. Consider doing so, whether you want to make a statement and support the Occupy Wall Street movement or you simply want lower fees and better rates. Shop around first, of course, to make sure that switching is a smart move for you.

Learn more:

Longtime Motley Fool contributor Selena Maranjian owns shares of JPMorgan Chase, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of Citigroup, Wells Fargo, JPMorgan Chase, and Bank of America.




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91 Comments

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Annie August

I honestly prefer a credit union over big banks. For me, a credit union is a lot easier to deal with compared to banks and the folks at Oak Trust in Plainfield, Illinois just make the experience even better. Check out their website at www.oaktrust.com

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Big Banks are untruthful PINK CREATURES CALLED "PIGS" So far CHASE has been good one and it's owned by Japan. Billionaire Warren Buffet made a bad decision on spending $5 Billion Dollars to own part of Bank of America then B of A CEO comes up with $5 fee per month if use B of A's debit cards that caused almost millions of accounts to be closed within a week of the announcement. Wells Fargo will soon add $3 per month fee for using their debit card.

October 27 2011 at 11:34 AM Report abuse +2 rate up rate down Reply
Consiglieri

What is this - a paid advertisement for Credit Unions by some hack blogger? Was this written on her laptop from some park in lower Manhattan? This writer has absolutely no clue who is or isn't moving their accounts - its all conjecture - but that headline that "millions" have moved their accounts is all that they want their readers to see.... - Im personally very happy with my bank. They provide me all of the services that I need at a fair price. There are plenty of other services that I pay for that I'm far less happy with. An airline just charged me $125 dollars to change a flight that I paid $150 for. I can't afford to pay my real estate taxes - while my local government gets bigger and bigger... This whole "bash the banks" thing is a diversion being created by our government to smoke-screen what they are failing to do for us.... The "Occupiers" should be camped out in D.C.

October 24 2011 at 8:42 AM Report abuse +1 rate up rate down Reply
1 reply to Consiglieri's comment
Lucas Max

Where is the word "millions" at in the headline? That article is showing the advantages about credit unions. And your complaint about your bank is one of the reasons why the article was written, to show that you do have a choice when it comes to your money and a financial institution. And no, there is no "smoke-screen," no "diversion!!!!" Banks do suck! Credit unions are crooks. But where did that $780 billions dollars go? It went to the banks and "free market" that put us in this recession. Instead of spending it in a manner that would trickle the money down and free up the market they spent it overseas and on themselves. But none the less, they are failing us. The facts in this article are accurate though and representative. But please keep your shitty opinions to yourself and just speak whats relavent.

February 27 2012 at 11:52 PM Report abuse rate up rate down Reply
LEO & GARCIA

In 2008 I had money In four banks, I saw what was coming, and I bailed out of all my bank accounts.

I am now in five credit unions, and very happy. credit unions are by far superior to banks in just about

everything.

Particularly in CD investments. Switch now and save.

October 24 2011 at 5:17 AM Report abuse rate up rate down Reply
guccifind@gmail.com

I'm sorry- I can't hear you over your shouting.

October 24 2011 at 3:50 AM Report abuse +1 rate up rate down Reply
Wwhatever747

Big Banks are untruthful PINK CREATURES CALLED "PIGS" So far CHASE has been good one and it's owned by Japan. Billionaire Warren Buffet made a bad decision on spending $5 Billion Dollars to own part of Bank of America then B of A CEO comes up with $5 fee per month if use B of A's debit cards that caused almost millions of accounts to be closed within a week of the announcement. Wells Fargo will soon add $3 per month fee for using their debit card.

October 24 2011 at 3:39 AM Report abuse -2 rate up rate down Reply
Steve

32 years with the same Credit Union, never had one reason to call for explanation...not bad/ Considering I close a major bank account a year ago and considering another one...Obama was incompetent to save them, but then he proved that every year he kicks the economy down the drain, with his stupid wind tunnel thoughts.

October 24 2011 at 12:07 AM Report abuse rate up rate down Reply
Jun and Terry

sounds like people making these comments are for the banks even though they keep stealing peoples money,i guess they own apart of some of these banks and don't want to lose anything on their stocks.i have been with a credit union for years and i have had no problems,the banks i dealt with before that,a lot of problems.thats ok though,you little rich people keep ******* up to the big rich,when they have all the poor and working people have they will be coming after yours.

October 23 2011 at 10:45 PM Report abuse rate up rate down Reply
DRILLER

Been with navy federal for decades. better deal than banks, better operated than banks, and its Member owned,funded and and appreciated. screw a bank. they are crooked, lie, cheat, steal, and foreclose without oversight or regulation (that was repealed by Clinton and party.

October 23 2011 at 10:30 PM Report abuse +1 rate up rate down Reply