12 Great Reasons to Drop Your Bank and Join a Credit Union

Photo (cc) by Images_of_Money

It’s easy to confuse credit unions with banks. They offer many of the same services and, from the street, their operations look similar. But peek under the hood, and you’ll find major distinctions. Depending on your needs, moving to a credit union could save you some serious money.

What’s a credit union, what’s a bank?

Let’s start with what credit unions aren’t. They’re not banks. Banks have important roles. Their massive funding provides liquidity and lending capacity that keeps the economy going. But they exist to make money for their shareholders, and they need to charge enough for products and services to cover expenses and make a profit. For consumers, maybe the best way to make money from a bank is to buy its stock.

Banks and credit unions come in all shapes, sizes and flavors. Not all banks are a bad deal for consumers, and not all credit unions are the best choice. (Read Is it Time to Divorce Your Bank?).

Banks typically offer at least a distinct advantage in two areas:

Whiz-bang technology. Banks’ size and wealth lets them invest in the latest technology, which, depending on your institution, can mean more-robust online banking or mobile banking offerings. Credit unions are catching up but, generally, they lag in technology.

Credit card rewards. Credit unions excel at offering lower APRs on card balances. Credit cards issued by credit unions, however, rarely top lists of cards best for rewards. Banks and retailers often have better deals.

But if you are looking to save money, borrow at lower rates and enjoy personal service, a credit union may be the best bet for you. Here are 12 areas where credit unions really shine:

1. Better service

Credit unions are cooperatives, owned and operated by members. That means they emphasize consumer value and customer service.

In 2014, three major consumer surveys (The Harris Poll, the Chicago Booth Kellogg School Financial Index and The American Customer Satisfaction Index) found that customers trusted credit unions more than banks.

Says the American Customer Satisfaction Index:

For a second year, credit union members feel that they receive better service and more competitive interest rates than consumers who have accounts or personal loans through retail banks. ACSI’s annual study on financial services shows banks down 2.6 percent for customer satisfaction to score 76 on a 100-point scale.

Credit unions enjoyed a rating of 85 points (of 100) from the survey.

http://youtu.be/hyXJtspIqnk

2. More-personal relationships

When phoning your national bank to inquire about a product or service, it may be hard to find someone empowered to make a decision or answer a difficult question. You’re likely to reach a call center and be politely shuffled from one customer service representative to the next.

Money Talks News’ Allison Martin, in 9 Reasons to Love Credit Unions (and Not Big Banks), tells why she prefers a credit union:

The credit unions I’ve joined have been staffed by friendly representatives who knew me by name. I can’t say I’ve had that experience with banks.

3. Expanding membership options

Credit union membership used to be available only to people who worked at certain companies, schools or government institutions. Today, joining is much easier. Many credit unions base eligibility simply on where you live. Credit union membership is growing by about 2 percent a year, says The Washington Post.

4. Higher rates on insured savings

American credit unions are not-for-profit organizations. That means their focus can be serving members rather than making profits. Also, they are exempt from paying federal taxes. These factors can let them pay higher interest on deposits.

“Many credit unions pay ‘bonus’ dividends if the credit union has a good year,” according to The San Marcos Daily Record.

Writes The Motley Fool:

The average credit union offers CD, money market, and savings rates well above the national average for banking rates. The disparity is most dramatic for longer-term savings vehicles such as certificates of deposit, where credit unions pay nearly 50 percent more on five-year CDs than banks.

Compare rates for CDs, interest checking accounts and money market accounts at Money Talks News’ solutions center.

5. Cheaper rates on some types of loans

Credit-union car loan rates can be head and shoulders above banks’. MyCreditUnion.gov, a site of the National Credit Union Administration, quotes from SNL Financial, a banking and business analytics company that analyzed credit union competitiveness in 2014:

SNL Financial found the difference between banks and credit unions was greatest in car-loan interest rates. The average 36-month used-car loan interest rate offered by credit unions was 2.71 percent compared to 5.26 percent for banks. For new-car loans, credit unions offered an average interest rate for 48 months of 2.64 percent compared to 4.78 percent for banks.

The Wall Street Journal wrote recently about car loans:

The average interest rate at such (credit union) lenders on three-year new-car loans was 2.51 percent as of Dec. 30, (2014) compared with 4.68 percent at banks, according to SNL Financial, a financial-information firm based in Charlottesville, Va. At Navy Federal Credit Union, the largest credit union in the U.S. by assets, the fixed interest rate for a new-car loan of up to three years is as low as 1.49 percent.

For mortgages, credit union rates can be comparable with other lenders though not often stellar. However, The Washington Post says, home equity lines are a standout offering, with credit unions charging an average 4.01 percent vs. 5.73 percent by banks.

6. Lower banking fees

Credit unions are known for lower fees. “Roughly 80 percent of credit unions offer free checking accounts, compared to less than 50 percent of banks,” reports The Washington Post, quoting research by Moebs Services. The Post says fees are 5 percent to 20 percent lower at credit unions than banks.

However, the Post adds, banks waive checking fees more (26 percent, on average, vs. 10 percent by credit unions).

The median overdraft fee (half were more, half less) at banks was $30, vs. $28 at credit unions, according to the Post. But, again, banks were more likely to waive those fees.

7. More ATMs

It seems counter-intuitive, because credit unions are smaller than big national banks, but credit union members often enjoy more free ATM access than bank customers. Explains The Post:

… credit unions — despite having fewer locations — typically give customers access to broader networks of ATMs by sharing branches and other resources. The largest such network of cash machines, dubbed the CO-OP network, offers about 30,000 ATMs across the country.

8. Support for communities

Credit unions and community banks have a track record of investing and participating in local communities. The Institute for Local Self-Reliance, “a national research and policy organization founded in 1974 to advance community-centered, environmentally sound and equitable economic development,” says:

The more the community prospers, the more the local bank benefits. This is why many local banks and credit unions are involved in their communities. Big banks, in contrast, are not tethered to the places where they operate. Indeed, they often use a community’s deposits to make investments in other regions or on Wall Street.

9. Easier credit

Credit unions aren’t charities, of course, but they are known for working hard to help members get loans when possible. Their structure gives them more flexibility. “Because of its unique ownership structure, a credit union doesn’t have to abide by loan restrictions and qualifications mandated by some far-away corporate home office,” blogs The Simple Dollar.

10. Support for small businesses

At credit unions (and community banks), people who live locally make loan decisions. They may know borrowers and are more able to take into account intangibles like community reputation, integrity and accountability. Also, they understand the value to the community of a small business, its market and credit needs.

11. Better credit card rates

If you carry a balance, you’ll probably do better with lower credit union card interest rates. Here’s a comparison of average interest rates on three types of cards issued by banks vs. credit unions:

Rates for three types of credit cards issued by banks and credit unions

*Classic *Platinum *Rewards
Bank 12.39 10.7 11.91
Credit union 11.4 8.97 9.81

*Average rates for March 6, 2015, from CULookUP.

12. Fewer account-maintenance fees

Banks often charge maintenance fees if you fail to keep a minimum balance in your checking or savings accounts.

“Credit unions, formed for the purpose of helping low- and middle-income Americans create savings, have largely avoided monthly account fees for their customers,” writes The Motley Fool.

What is your experience with these two types of financial institutions? Share with us in the comments below or on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
How to Avoid Being Surprised by 7 Nasty Expenses
How to Avoid Being Surprised by 7 Nasty Expenses

Major expenses are difficult to predict, but there are ways to make sure you’re protected.

10 Things You Should Never Buy on Amazon
10 Things You Should Never Buy on Amazon

Just because you can purchase something on Amazon doesn’t mean that you should.

Small Splurges That Make It Feel Like You’re Living Large
Small Splurges That Make It Feel Like You’re Living Large

Cutting costs is the shortest path to financial freedom. However, there are times when a little spending can produce big returns.

7 Reasons You Should Consider a Career Change at 50
7 Reasons You Should Consider a Career Change at 50

Wondering how to change careers at 50, or if it’s possible at all? The good news is that many older workers have the energy and experience to pull it off.

These 12 Reusable Products Save You Money Over and Over
These 12 Reusable Products Save You Money Over and Over

Buy reusable versions of these household items, and you won’t have to spend another dime on them for years.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

How to Buy Gas At Costco Without a Membership
How to Buy Gas At Costco Without a Membership

The warehouse club often has some of the cheapest gas in town. Here’s how you can get it as a nonmember.

10 Things to Stop Buying If You Want a Clutter-Free Home
10 Things to Stop Buying If You Want a Clutter-Free Home

If you like to keep things simple, avoid these purchases.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

Vacuums from this brand can last a half-century, if not longer — and they’re hot on the resale market.

A Simple Way to Silence Robocalls Today
A Simple Way to Silence Robocalls Today

A few steps can keep your phone from ringing when a spammer calls.

This Company Makes the Best Tires in America
This Company Makes the Best Tires in America

Driver satisfaction with tires is at an all-time high, but one brand stands out.

This Health Issue Can Hint at Dementia Years in Advance
This Health Issue Can Hint at Dementia Years in Advance

One type of pain is especially associated with cognitive decline.

Can I Switch to Spousal Social Security Benefits When My Ex Dies?
Can I Switch to Spousal Social Security Benefits When My Ex Dies?

Knowing when to claim can help you maximize benefits.

Medicare Will Not Cover These 6 Medical Costs
Medicare Will Not Cover These 6 Medical Costs

Don’t let these health care expenses catch you off guard in retirement.

8 Things You Should Always Buy on Amazon
8 Things You Should Always Buy on Amazon

The giant retailer shines when it comes to these things, from basics to hard-to-find specialty goods.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

5 Ways to Fill Your Pantry With Free Food
5 Ways to Fill Your Pantry With Free Food

Anyone can take advantage of these resources.

Beware This Hidden Ingredient in Rotisserie Chicken
Beware This Hidden Ingredient in Rotisserie Chicken

Something foul may lurk in those delicious, ready-to-eat birds.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

6 Reasons You Should Stop Hiding Cash at Home
6 Reasons You Should Stop Hiding Cash at Home

Stashing money around the house is anything but harmless.

5 States With the Worst Health Care for Retirees
5 States With the Worst Health Care for Retirees

All of these states are located in the same region of the nation.

12 Deep Discounts Available on Amazon This Friday
12 Deep Discounts Available on Amazon This Friday

These items are steeply discounted — but the deals won’t last long.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

This iconic dinnerware is prized for everyday use as well as reselling for profit.

5 Products You Should Never Buy Generic
5 Products You Should Never Buy Generic

Sometimes the brand-name version is clearly superior.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.