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With the introduction of the Durbin Interchange Amendment coming in July and big banks raising fees (or instituting new fees) for many customers, Americans are seeking alternatives to banks for their savings, checking and lending needs.
First on the list for many people? A credit union.
The Difference Between Banks and Credit Unions
Mike Schenk, VP of Economics for the Credit Union National Association explains the fundamental difference between a bank and a credit union: “Credit unions are not-for-profit financial cooperatives owned by their members. Other banks are for-profit and are owned by stockholders, who may or may not have deposits in the institution. Banks are controlled by paid boards of directors.”
And that explains a lot of the not-so-customer-friendly policies we’ve been seeing at big banks lately.
“Because credit unions are owned by our depositors, we maintain our focus on customer service,” Schenk says, noting that 30 years of satisfaction surveys rank credit union customer service ahead of banks.
“The not-for-profit status and the fact that we’re cooperatives translates into huge financial and non-financial benefits to the folks who do business with credit unions,” he adds.
Credit Unions and Financial Savings
According to statistics from the independent national market research agency Informa, the average interest rate on a reward credit card issued by a credit union is 10.28%, while the average interest rate for a bank reward credit card is 12.37%. The difference (and savings) is even greater when you look at the average annual fee: $27.29 for a credit union rewards card, and $63.50 for a bank-issued rewards credit card.
Schenk says that credit unions offer members a savings of $9 billion, total, over banks for a year. “That adds up to a substantial amount of money per household,” he says.
Despite this major difference, banks and credit unions offer most of the same services to their customers or members.
What You Can Get from a Credit Union
Like banks, credit unions offer:
- Checking accounts
- Savings accounts
- CDs and Money Market accounts
- Car loans
- Personal loans
- Credit cards and Rewards Credit Cards
- Online banking, including online bill pay (at most credit unions)
- A large network of ATMs (at most credit unions)
While money in the bank is backed by the FDIC, a government agency that ensures your bank deposits up to $250,000 in any single institution, your money in a credit union is similarly protected. Credit union members’ deposits up to $250,000 are insured by the National Credit Union Administration (NCUA) and backed by the full faith and credit of the U.S. government, just like bank deposits and the FDIC.
On the NCUA website, personal finance expert Suze Orman explains: “They’re virtually identical. NCUA protects the money you have in a credit union account up to $250,000, same as FDIC protects money in a bank account.”
The Downside to Credit Unions?
A credit union offers all the same services and benefits as a bank (large or small), lower (or no) fees, lower interest rates for credit cards and loans, and higher interest rates for savings accounts, on average.
So what’s keeping so many people with banks?
For a lot of people, it’s simply a matter of convenience. They’ve been with their bank for years and it’s a hassle to switch. For other people, the concern of not seeing their credit union on every corner might make them hesitant to move their money.
But just because you don’t see the familiar logo of any single credit union doesn’t mean you can’t bank anywhere in the U.S. (or online) with a specific credit union. Schenk says, “Because we’re a cooperative, we have nationwide ATM networks.” Depending on the credit union you select, Schenk says, “No matter where you travel, you can access credit union accounts and not incur fees.”
A search of credit unions online shows popular credit unions with regional or nationwide ATM networks of anywhere from 2,500 to 10,000 or more surcharge-free ATMs. Additionally, most credit unions offer online banking services; 81% of credit union members use online bill pay through their credit union, according to statistics.
As with banks, it depends on which credit union you choose, so it’s important to look for one with the features you need.
If you’re fed up with big bank fees and looking for a friendlier place to keep your money, a credit union might be the answer. You can also save money by applying for rewards credit cards issued by credit unions, rather than big-name banks. It’s something to consider.