There's no denying that many of the nation's banks are disappointing their customers, whether through high fees, poor lending availability, or bad service reputations. With more and more consumers choosing to put their money into financial cooperatives, it's clear that the big banks are losing some ground. Here are the top five benefits of a community credit union for those dissatisfied with their current banking choices.
Source: Flickr/Hey Paul
1. No nickel and diming
One of the most prominent features of a credit union is its not-for-profit model. Unlike traditional banks, which need to maximize their bottom lines through high account fees, credit unions don't need to boost profits to make shareholders happy.
Though the business model for a credit union does allow for profits, since members are owners, they are the beneficiaries of the gains. Profits are either distributed as dividends (for very flush cooperatives) or reinvested in the operations. This injection of funds allows credit unions to operate at lower costs than traditional banks, leading to lower account costs and fees.
A review conducted by Consumer Reports in 2012 found the following data for average bank and credit unions fees:
| Average Fee | |||
| Banks | Credit Unions | Difference | |
| Non-interest checking monthly fee | $10.27 | $6.00 | -42% |
| Online bill pay fee | $6.95 | $0.00 | -100% |
| Out-of-network ATM fee | $2.21 | $1.07 | -52% |
| ATM surcharge | $2.96 | $2.79 | -6% |
| Overdraft fee | $34.48 | $27.82 | -19% |
| Stop payment fee | $31.09 | $19.43 | -38% |
The table above demonstrates how credit unions can save the average banking customer money. In fact, though most credit unions are located within a small geographic region, many have entered branch-sharing and ATM agreements with other co-ops in order to give their members fee-free access to their money.
2. Great rates
Interest rates are always an area of interest for banks and consumers alike. Since the Federal Reserve continues to maintain the Federal Funds rate near zero, there's little ground for any financial institution to gain overall.
But, another benefit of the reinvestment of profits lies with proffered interest rates. Nationally, credit unions top the big banks in terms of competitive savings interest rates, while also offering lower borrowing rates for traditional loans.
According to the Credit Union National Association, the financial cooperatives had highly competitive terms versus the Wall Street banks. Here's a comparison of the available rates as of April 16:
| Deposit Products | Credit Unions | Bank Average | Difference |
|---|---|---|---|
| 12 Month CD $10,000 | 0.44% | 0.28% | 0.16% |
| Personal Savings $1,000 | 0.22% | 0.10% | 0.12% |
| Personal Interest Checking $2,500 | 0.34% | 0.15% | 0.19% |
| NSF Fee | $27.74 | $30.73 | $-2.99 |
| Personal MMDA $2,500 | 0.17% | 0.10% | 0.07% |
| Business MMDA $2,500 | 0.17% | 0.09% | 0.08% |
| Consumer Loan Products | Credit Unions | Bank Average | Difference |
| Unsecured Personal Loan-$5,000-4 Years | 10.21% | 10.46% | -0.25% |
| New Auto Loan-5 Years | 2.59% | 3.74% | -1.15% |
| Used Auto Loan-2 year Old-4 Years | 2.77% | 3.98% | -1.21% |
| HELOC-80% LTV-$50,000 | 4.20% | 4.42% | -0.22% |
| HE Loan-80% LTV-$50,000-15 Years | 5.72% | 6.08% | -0.36% |
| Mortgage Loan Products | Credit Unions | Bank Average | Difference |
| 30 Year Fixed Conforming | 4.30% | 4.34% | -0.04% |
| 30 Year Fixed Jumbo | 4.45% | 4.25% | 0.20% |
| 5/1 Year ARM Conforming | 2.95% | 2.88% | 0.07% |
| Credit Card Products | Credit Unions | Bank Average | Difference |
| Platinum | 9.07% | 10.85% | -1.78% |
| Annual Fee | $21.67 | $58.20 | $-36.53 |
| Maximum Late Fee | $25.83 | $33.38 | $-7.55 |
| Reward | 9.87% | 12.08% | -2.21% |
| Annual Fee | $26.71 | $102.13 | $-75.42 |
| Maximum Late Fee | $22.74 | $32.99 | $-10.25 |
| Indirect Auto Loan Products | Credit Unions | Bank Average | Difference |
| Indirect A Tier New Auto Loan-5 Years | 3.67% | 3.71% | -0.04% |
| Indirect B Tier New Auto Loan-5 Years | 5.41% | 5.29% | 0.12% |
| Indirect C Tier New Auto Loan-5 Years | 7.63% | 6.67% |
0.96% |
Source: Credit Union National Association, Daily Comparison Chart.
Though there are some instances in the table above that shows a better rate for borrowers at a bank, those loan types tend to be specialized -- types of accounts credit unions don't focus on. Otherwise, in the low interest rate environment, credit unions give you a bigger bang for your buck.
3. "People helping people"
If you're looking for better customer service, it helps to be an owner-operator of the financial institution you frequent. Credit unions are at their core a financial cooperative, owned by the members they serve. With that in mind, it's not hard to see why customers frequently rate credit unions as better satisfying their needs than the nation's banks.
As of 2013, customers/members rated banks and credit unions as 78% and 85% satisfactory, respectively, in meeting financial needs and customer service, according to the American Customer Satisfaction Index. Though banks inched forward versus the prior year, gaining 1.3%, credit unions tripled that gain.
Source: CUNA.org.
The common motto of credit unions is "people helping people" -- and it makes sense. Since the health and stability of any given credit union is dependent upon the financial health of its members, every cooperative has incentive to treat customers right and make sure their needs are met. Members are a part of the credit union community, not just an account number.
4. Flexibility
Attention to individuals isn't just reserved for customer service needs. Since each member is important to the cooperation, credit unions and other financial co-ops are better able to accommodate difficult or non-traditional financial situations. Wall Street's banks may have turned you down for a loan based on your imperfect credit history or infrequent pay schedule.
Since megabanks handle a huge number of loan or credit card application on any given day, set standards are used to streamline the approval process. But for credit unions, with smaller stresses on their resources, individuals have a better chance of approval outside of a standard set of requirements.
I personally experienced the benefit of a credit union's flexibility several years ago.
I was denied approval for a personal loan from my traditional bank, which was intended to consolidate some credit card debt. The reason: The bank considered the new loan too much for my finances to handle with the outstanding debt I already had. Even though it was clear to the banker I was working with that the credit card debt would no longer exist thanks to the new loan, the bank's automated review system was unable to see beyond the numbers and add context to the approval process.
When I sought a loan from my local credit union following the bank's denial, I was promptly approved.
5. Simplification
When you open an account at one of the nation's top banks, how many choices do you have? Though a credit union offers the same types of accounts as a traditional bank, specialized accounts won't be among their product list. Generally speaking, a credit union will give members one or two options for a product, saving time and expense by avoiding accounts with special features or rewards.
By simplifying their product offerings, credit unions help members avoid difficult requirements and restrictions frequently experienced by even the most basic accounts at a megabank. Though Wall Street's banks have been progressively moving away from "free checking," credit unions continue to provide free offerings to their members.
Big benefits
For those consumers looking for traditional, no-frills accounts, credit unions offer plenty of benefits that the nation's big banks can't touch. Though there are some drawbacks, like a small geographic area for branch locations, credit unions are able to give members competitive rates, attractive products, and a service-oriented experience. For more information on credit unions and your options for membership, check out mycreditunion.gov.
