Digital Federal Credit Union is headquartered in Massachusetts, and its physical branches are in its home state as well as in New Hampshire. However, the credit union has more than 470,000 members in all 50 states, many of whom have never even set foot into a DCU branch. As one of the 20 largest credit unions in the United States, Digital Federal Credit Union is an excellent example of why many people choose to use credit unions for their banking needs instead of a traditional bank. Let's take a look at the products and services of Digital Federal, as well as how it overcomes its intrinsic limitations.

What is a credit union and why do people use them?
A credit union is a non-profit financial institution that serves members that have something in common, such as an employer, membership, or geographical location. They are democratically controlled by a volunteer board of member-directors, who are generally elected by the members of the credit union.

There are about 8,000 credit unions in the United States serving more than 87 million members, and a big part of the attraction is the perks that come from credit unions' non-profit business model. Since they aren't worried about making millions of dollars, credit unions can offer better interest rates, lower fees, and a more personal experience than traditional banks.

DCU's great rates and a variety of products
Digital Federal Credit Union offers a variety of banking products, and many pay significantly higher rates than members could find elsewhere. For example, DCU's primary savings account pays an unheard of 3.04% interest on the first $500 in the account. Any money in excess of that amount pays a more standard 0.05%, but this still makes the savings account significantly more lucrative than those offered by traditional banks.

And, the rates on money market accounts and CDs exceed the national averages for credit unions, as you can see in the chart below.

Product Digital Federal Credit Union Credit union average Regional bank average National bank average
5-year CD 1.75% 1.72% 1.09% 0.57%
3-year CD 1.25% 1.12% 0.69% 0.36%
6-month CD 0.50% 0.32% 0.16% 0.12%
Money market/ savings 0.20%-0.80% (depending on balance) 0.22% 0.06% 0.03%

Note: DCU offers slightly higher CD rates for jumbo ($25,000 or more) accounts, as well as for CDs held in an IRA. The listed interest rates are for standard CD accounts. Source: WalletHub 2015 Banking Landscape Report

DCU also offers a completely free checking account, with no minimum balance requirements. Furthermore, if customers meet two of the three relationship requirements (direct deposits, electronic statements, active loan account), they qualify for free non-DCU ATM use as well as up to $5 per month reimbursement for fees charged by other bank's ATMs. If they meet all three, they get a 0.25% interest rate bonus on CDs and a 0.5% interest rate discount on loan accounts.

On the lending side of the business, DCU offers some of the best rates in the business. The bank offers 65-month auto loans with rates as low as 1.74%, and offers a full array of other lending products such as

  • Mortgages
  • Specialty auto (classic car, mobility vehicle)
  • Motorcycle
  • Boats
  • RVs
  • Private student loans
  • Personal loans

Finally, DCU offers its members credit card products with interest rates that look more like what you might expect from a personal loan, not a credit card. The DCU Platinum Visa offers interest rates as low as 8.5%, and there is even a secured credit card with an 11.5% APR and no annual fee.

So, it's fair to say that DCU has a product line that is more attractive than traditional banks' offerings, and even most other credit unions.

Limitations of credit unions and how DCU compensates for them
One of the reasons Digital Federal Credit Union has been so successful is that it does an excellent job of compensating for the traditional limitations of credit unions.

  1. Credit unions generally have small ATM networks, but DCU charges no non-bank ATM fees for customers who qualify, and also provide up to $5 per month in reimbursement for ATM fees charged by other banks.
  2. Many credit unions have "bare bones" technology, but this is not the case with DCU. There is a complete online banking platform, as well as a mobile app offering features like mobile check deposits.
  3. Perhaps the most significant limitation is that credit unions (including DCU) tend to have a small network of physical branches, making it difficult to do banking while traveling, for example. DCU solves this problem through a national network of 3,000 cooperative credit union branches throughout the country.

Are credit unions like DCU right for you?
As I mentioned here, there are some inherent limitations of credit unions that can make them less favorable than traditional banks. However, Digital Federal Credit Union does an excellent job of compensating for these factors, while offering rates and fees that exceed the national average. For those who can join DCU, or a credit union with similar features and products, it's hard to make the argument that sticking with a traditional bank is the best way to go.