Wells Fargo's (NYSE:WFC) ongoing debacle has created a growing feeling of concern about trusting big banks. As a result, many consumers have turned to credit unions as the obvious alternative for a place to put their money. But before you make such a move, consider what you'd be giving up in the process -- and whether it's worth the trade-offs.
What is a credit union?
While most people know what a bank is, they may be a little shakier on the definition of a credit union. Credit unions are just a variety of bank -- with two important particularities. First, credit unions are operated on a not-for-profit basis. And second, they are cooperatives, meaning that they're owned by their members (that's credit-union-speak for customers) as opposed to being owned by shareholders as big banks are.
Benefits of joining credit unions
Because credit unions aren't in it for the money (sorry, bad pun), they can typically offer better deals to their members than banks can. Most credit union accounts have lower fees and pay higher interest rates than comparable bank accounts. Credit unions tend to be quite small, with no more than a handful of branches scattered over the local area, so they are focused on supporting the local community and tend to offer excellent customer service. It's often easier for members with shaky credit or other financial issues to qualify for loans, including mortgages, at a credit union than it would be for them to qualify at a big bank.
Benefits of joining big banks
Big banks are, well, big, so they have more resources available to them than credit unions do. Big banks will typically have nice perks such as highly interactive websites, feature-rich apps for the smart phone, and more account options. Most big banks have branches all across the country; some are even international, making them far more convenient than credit unions for frequent travelers. And customers with excellent credit can usually get better rewards programs from big banks. Finally, just about anybody can get an account at a big bank; credit unions often have requirements for membership, such as living in a certain area or belonging to a certain profession.
Choosing your financial provider
Credit unions tend to be local in nature, so your decision will depend in large part upon what's available in your area. Find out which credit unions you can qualify to join, and then compare those credit unions to the big banks of your choice. Another option is to take advantage of both sets of benefits by splitting your business between banks and credit unions. For example, you might have your checking and savings accounts at a credit union to take advantage of their higher interest rates, while having your primary credit card from a big bank to take advantage of their excellent rewards program. Now there's a way to have your cake and eat it too.