Americans Keep Fleeing Banks, Flock to Credit Unions Instead

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Willie Sutton smokes during questioning in Queens, New York, in 1952. (AP)
Willie Sutton smokes during questioning in Queens, New York, in 1952. (AP)
According to urban folklore, when famed 20th-century bank robber Willie Sutton was asked why he robbed banks, he replied: "Because that's where the money is."

In fact, before his death, Sutton denied ever having uttered the quip, attributing it instead to "some enterprising reporter who apparently felt the need to fill out his copy." Explained Sutton: "Why did I rob banks? Because I enjoyed it. I loved it. I was more alive when I was [robbing a bank] than at any other time in my life."

Given current public sentiment against the nation's big financial institutions, it's a sentiment a lot of Americans might be able to get behind. Not robbing banks, exactly, but taking their money out of them ... and putting it in credit unions instead.

Time to Break the Bank

According to the Credit Union National Association, credit union membership hit a record high in 2011. It did it again in 2012, with the National Credit Union Administration saying membership in credit unions surpassed 93 million in the second quarter, the largest quarterly increase in membership since autumn of 2008.

A report earlier this month out of SNL Financial shows that credit unions are gaining ground on their for-profit commercial rivals in other ways as well.

In the third quarter of 2012, credit card loans to consumers from credit unions topped $38 billion, rising by almost $2 billion over third-quarter 2011 levels -- about a 5 percent increase. In contrast, while credit card loans from U.S. commercial banks continued to dominate the market at $669 billion, down by about the amount from their $671 billion in credit card loans in third-quarter 2011.

The surge of interest in credit unions stems in part from recent highly publicized efforts by commercial banks to load up their customers with new fees -- on debit cards, on checking accounts, on ATM withdrawals. As well, there's the banks' role in the 2008 financial crisis, which came close to destroying the American economy. And toss in the banks' tooth-and-nail fight to preserve high interest rates, high service fees, and "universal default" policies on credit cards for a third.

At the same time, though, give the credit unions some credit for doing a lot of things right.

How You Profit From a Nonprofit Model

A creation of the 1934 Federal Credit Union Act, credit unions are designed to offer basic banking services on a nonprofit basis. Checking and savings accounts, and even online banking -- yes. Commercial loans to businesses, broad geographic branch networks, and investment banking -- no.

Owned by their members (rather than by profit-hungry shareholders), credit unions have both an incentive to keep costs low and a complementary lack of incentive to raise costs high. As a result, it's only natural that they often offer a better deal than you can you can find at many of the nation's big banks.

For example, have you noticed that it's getting harder to find a bank that offers free checking? The Christian Science Monitor recently observed that while "all of the largest banks offered free checking until 2009 ... now, almost none do." In contrast, a survey conducted by Bankrate.com in 2011 showed that out of the 50 largest credit unions in the nation, 38 of them, including such names as Navy Federal, Teachers Federal, and Virginia Credit Union, still offer free checking to their members.

And take credit cards, for example. According to SNL Financial, the average rate of interest charged by U.S. commercial banks on "platinum" tier cards is currently 9.9 percent. Credit unions, in contrast, can be found offering rates as low as 6 percent, 5 percent, or even 3.25 percent on such cards.

Rewards credit cards, which "pay back" users with airplane miles, credits on bills, and even cash, charge 11 percent on average among commercial banks. But here again, credit unions are working to undercut their rivals, with several offering rates as low as 7.5 percent, 6.25 percent, or 3.25 percent. (Note: If that last number piques your interest, see if you can get yourself an account with Educational Systems Federal Credit Union in Greenbelt, Md., which offers both platinum and rewards cards rates at the 3.25 percent level.)

None of this is good news for investors in banking stocks, granted. But for consumers, fed up with the high cost of traditional "banking"? It's good news for tough times.

Rich Smith is a Motley Fool contributing writer.


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Walt

BANKS AND THE ENERGY PEOPLE (OIL IN PARTICULAR), THEN THE TELACOMMUNICATION PEOPE, THEN INSURANCE COMPANIES, ARE THE MOST EVIL ENTITIES ON OUR PLANET. I AM STILL IN DISBLIEF THAT THE AIG'S OF THE WORLD AND BANKS HELD THIS COUNTRY AT GUN POINT BECAUSE OF THEIR NEGLANCE, I AMCONVIENCE THAT THIS PRESIDENT HAD TO DO WHAT HE DID, HOWEVER I AM DISSAPOINTED THAT NOTHING HAS CHANGED, THEY ARE STILL EVIL AND CONTROL US AT EVER LEVEL. WE HAVE TO START REGULATING BANKS MORE, OIL COMPANIES MUCH MORE, AND TELAMUNICATION PEOPLE...YOU SCREAM ABOUT BIG GOVERNMENT--QUESTION, WITHOUT GOVERNMENT DO YOU ACTUALLY THINK THESE FINANCIAL INSTITUTIONS WOULD BE FAIR OR DRILL FOR OIL WITH RULES---NOT ON YOUR LIFE...

January 10 2013 at 5:08 PM Report abuse rate up rate down Reply
rkeeeballs

Most credit unions make banks look like thieves ....Had $50k in a bank savings account....They hounded me constantly to remind me that I could open a CD @ half of one percent interest rate. I asked how much interest would be for a car loan and was told 5.9%...because I'm in good standing. I withdrew all my money and put it in a credit union.....end of problem. CU gave me a car loan for 4.9%...Chase is the worst ..Bank of America sux. They will charge you for even the most common and trivial services.

January 10 2013 at 10:38 AM Report abuse rate up rate down Reply
Wayne

MY credit union doesn't cost me anything for checking or savings accounts. My back was charging me $10.00 a month that I found on my statement. No more Big banks for me. They can all fail. Its time to put the money in a jar and hide it.

January 10 2013 at 7:43 AM Report abuse rate up rate down Reply
tinytrump

Managed CUs for 25 yrs, it is truly your money, not the investors,, therefore non- profit,, equals cheaper... Now some CUs are not based on "people helping people" like they used to,,, watch out for those who have changed the basic principles..

January 10 2013 at 7:27 AM Report abuse rate up rate down Reply
maa2626

living in the northeast we use citizens, northwest and fulton. running businesses and personal accounts you are bound to have problems, some taken care of to our satisfaction, some not. Never have we felt taken advantage of. I have seen people try to take care of banking problems over the counter and over the phone, both are a recipe for aggravation. take time to stop in at a branch, and sit down with a live human being, show some respect and a gracious attitude and you will be helped. final notes, it is your money, it is your responsibility to have a basic knowledge of deposits, addition, and subtraction. If you deposit a check on monday before 2 pm, those funds will not be available unitl wednesday AM. Have at least 1000$ in savings to prevent overdrafts.

January 10 2013 at 6:59 AM Report abuse rate up rate down Reply
RJM

Couldn't agree more. Right on article. I've been a credit union member since 1986 and will always be a member too. No way will I bank with the same banks whose questionable practices cost American people their homes and even after receiving bail out $ to grant loans and mortgage modifications, they refused to do so on both accounts, or used questionable criteria in which to base their decisions.

January 10 2013 at 4:21 AM Report abuse rate up rate down Reply
koos458

B of A free since 2008. Love my credit union and have saved at least $1,000 while getting much better service..

January 10 2013 at 1:09 AM Report abuse +2 rate up rate down Reply
Robert Cape

Dumped Wells Fargo, after they decided that they hadn't made enough money off me for the past 30 years. Nice clerks, devious "advisors" always trying to get you to switch to higher fee accounts.. haven't missed them a bit over the past year. My Credit Union is close, friendly, and not so vicious.. "what's a bank, Mommy?"

January 10 2013 at 12:00 AM Report abuse +3 rate up rate down Reply
smithticulous

At Least credit unions give some interest. unlike most banks.I remember getting 5.25% on savings in a credit union in the late 90's same credit union now 1% what a joke!

January 09 2013 at 8:42 PM Report abuse +1 rate up rate down Reply
mebecarl

GREAT NEWS! I did it last year. Tell your bank to take a flying leap, ALONG with their CEOs.

January 09 2013 at 8:03 PM Report abuse +3 rate up rate down Reply