Remember the $5 debit card fee fiasco in 2011 from Bank of America? The subsequent ire from frustrated customers resulted in the creation of a new kind of holiday -- Bank Transfer Day. On November 5 that year, customers were encouraged to leave their big banks in favor of credit unions. Though the holiday has fizzled since then, plenty of customers are still making the switch. But before you say sayonara to your current bank, what is a credit union and do its services fit your financial needs?
What it is
At its core, a credit union is an organization that allows a collection of like-minded members to pool their finances and support one another through lending and savings. As a financial cooperative, credit union members are part-owners of the business, contributing to the overall financial health and stability of the group.
Members for any given credit union are restricted, with requirements often centering on employment, community, or membership of an organization or association. Nevertheless, over 93 million Americans were members of a credit union in 2012, a record membership level.
What it's not
Credit unions are not-for-profit institutions, meaning that there are no shareholders looking for capital distributions. Though this designation prevents the need for credit unions to pay state of federal taxes, don't confuse them with non-profit organizations.
In order for any financial institution to maintain lending and service capability, a profit is necessary. But unlike traditional, publicly owned banks, credit unions return any profit made back into the organization or to members in the form of a dividend. Often, the profit facilitates lower account fees, lower rates for lending, and higher interest rates for savings accounts.
What it provides
Think of the services provided by the nation's banks -- checking and savings accounts, loans, and other financial services -- you'll find all of those are generally available through a credit union.
What you won't find is a complicated list of account offerings. Unlike banks, which have to cater to a large variety of customer needs, leading to copious offerings for any given type of account or loan, credit unions will typically only provide one or two options to members. This not only streamlines operations, but can lead to reduced fees and better terms for members.
With insurance through the National Credit Union Administration or private insurers, deposits are protected. The NCUA offers $250,000 in protection for member accounts.
Expansions in online banking and other technological developments have recently allowed credit unions to better compete with banks, which had previously had a lock on these types of tech offerings.
One other thing that credit unions can provide is a sense of community. With a select group of people allowed to join, members often report a more personalized experience -- a key distinction within the financial sector.
One of the key differences that sets a credit union apart from the nation's traditional banks is a general motto: "People helping people." Since credit unions are member-owned and operated, there is a higher concentration on customer service and satisfaction.
Based on 2013 data from the American Customer Satisfaction Index, credit unions far surpass banks in terms of customer satisfaction ratings. Topping out at an 85% satisfaction rating, credit unions beat the banks by a solid seven-point margin. The nation's banks may have had a better year, with a 1.3% increase in their rating, but credit unions tripled that improvement.
As a not-for-profit business, credit unions are truly focused on the improvement of its members' financial health -- since any gains will help the collective at large. This facilitates an environment that encourages practices that better serve its members.
Is it for you?
Unless you have a complicated financial situation that requires specialized accounts or attention, a credit union will likely meet your banking needs.
Though the nation's banks previously had a lock on convenience, most credit unions are on par these days. Your credit union may be focused in a small geographic region, but many offer ATM fee reimbursements or agreements with other financial institutions, so you're not limited on where you can access your money.
To check out if you qualify for membership at a local credit union, go to mycreditunion.gov to learn more and find the right fit for you.
Editor's note: A previous version of this article incorrectly stated the FDIC's maximum insured amount was $100,000. The Fool regrets the error.