If the response to "When banks turn evil" is any indication, a lot of you are really and truly sick of your banks.
You're sick of getting socked with fees, or tripped by hidden penalties, or earning lousy interest rates. You're tired of being treated like a nuisance rather than a customer. And yet you have little hope that the bank down the street is any better.
But who says you have to settle for a bank? Relief could be as close as the nearest credit union.
Because so many people are fuzzy about the differences between banks and credit unions, I'll highlight the three most important distinctions:
- Credit unions are member-owned. If you have an account at a credit union, you're a part owner in the enterprise. That may not entitle you to use the executive washroom -- your CU probably doesn't even have an executive washroom -- but you're likely to be seen as a person rather than as a "cost center."
- Credit unions are not-for-profit. This status helps explain why interest rates tend to be significantly better, and fees fewer and smaller, at credit unions than at banks. Any profits credit unions do make are distributed as dividends to their members. Contrast that with banks, which continually invent new fees and policies to boost profits (and to pay those stunning executive salaries).
- Banks hate -- hate -- credit unions. President Franklin D. Roosevelt signed the Federal Credit Union Act into law in 1934 to "promote thrift and thwart usury," and banks have pretty much been gunning for them ever since.
Because of their not-for-profit, cooperative structures, credit unions are exempted from most state and federal taxes. Banks have convinced themselves this is an unfair advantage and have spent a lot of effort, plus a fortune in lobbying fees, trying to legislate credit unions out of existence or at least limit who can join. (I guess they thought the money was better spent there than on, say, improving their interest rates, reducing their fees or slashing their telephone hold times.)
Are you eligible? Almost certainly
Fortunately for you, banks have failed pretty miserably in their efforts to contain the competition. That's why the Credit Union National Association, the CUs' trade group, can brag that virtually everyone in the U.S. can belong to a credit union, thanks to where they live, where they work or the associations to which they belong.
| Consumer loans | Credit unions | Banks |
|---|---|---|
Credit card | 12.15% | 15.08% |
48-month new car | 6.21% | 7.59% |
48-month used car | 6.46% | 8.17% |
36-month unsecured | 11.12% | 12.73% |
Mortgage loans | ||
HELOC | 7.91% | 8.34% |
One-year ARM | 5.75% | 6.05% |
30-year fixed | 6.75% | 6.77% |
Savings | ||
Regular savings | 0.94% | 0.73% |
Interest checking | 0.63% | 0.62% |
Money market | 1.96% | 1.24% |
One-Year CD | 4.74% | 4.17% |
Source: Datatrac, July 2007
The nation's credit unions count 90 million members, and their trade association estimates members save $8 billion a year thanks to better interest rates and reduced fees. Credit-union-issued credit cards, for example, tend not to have annual fees or to charge punitive interest rates for a single late payment. Most credit unions offer free checking accounts, and penalties for overdrawing those accounts tend to be lower: a $20 or $25 fee is typical, compared with up to $39 a pop charged by banks.
Yet many people discover the benefits of credit unions almost by accident, said Pat Keefe, a spokesman for the credit-union association. They'll join because they can get a decent rate on a car loan, say, and only gradually discover that the checking account has far fewer fees, the credit cards offer better interest rates, and the mortgages aren't bad, either.
But you don't have to wait until you need a loan. Usually, finding a credit union is as easy as visiting your employer's human resources department. If you don't work or want more options, you can use the "CU Matchup" tool at JoinACU.org.
Based on where we live, where my husband works and our various other affiliations, the matchup tool spit out 31 local credit unions that might accept us. Some of them had fairly narrow membership requirements, like America's Christian Credit Union, which requires attendance at certain evangelical churches. Others were pretty darned broad, like Wescom Credit Union, which allows anyone who lives, works, worships or goes to school in Southern California to become a member.
Not perfect -- but not out to get you
Like bank deposits, money in credit unions is insured for at least $100,000 per account. Instead of the Federal Deposit Insurance Corp., which insures bank deposits, the coverage is provided by the National Credit Union Administration, but both agencies are backed by the full faith and credit of the federal government.
And you typically aren't restricted to using your own credit union's ATMs. Most CUs either offer fee-free access to a huge network of ATMs or reimburse your fees if you use other institutions' machines.
Are credit unions perfect? Of course not. No institution run by humans and their computers could possibly claim to satisfy everyone all the time. Occasionally I'll hear of a credit union that's instituted some silly fee, and too many have opted for "bounce protection" instead of real overdraft protection for their accounts. (For why the difference is important, read "Don't be duped by 'bounce protection.'")
But most of the folks I talk to who have abandoned banks for credit unions are thrilled they made the switch. If you're sick of your bank, why don't you follow suit?