Perhaps the most underused, underappreciated consumer-friendly institutions, next to public libraries, are credit unions, which people use for loans, savings and daily banking. But recent data show the secret is slowly but surely leaking out.
In 2014, credit union membership grew 3.6 percent, the most in 20 years, according to Credit Union National Association estimates. Membership stands at more than 100 million. Loans from credit unions increased 10.2 percent, the most since 2005, driven in part by an improving economy.
“The credit union movement appears to be gaining momentum with consumers,” said Greg McBride, chief financial analyst at Bankrate.com.
Still, credit unions have a tiny sliver of the market, just 6.8 percent, as measured by total assets, according to CUNA. And if you count just household financial assets it’s less than 2 percent, according to the National Association of Federal Credit Unions.
Credit unions, unlike banks, are owned by depositors, so as a member you’re the boss, said Patty Briotta, spokeswoman for NAFCU. Because credit unions don’t have to make a profit for shareholders, they return their gains to members in the form of fewer and lower fees, lower loan rates and higher yields on savings.
A drawback is that not all credit unions are created equal, so the breadth of services will vary.
It’s not a binary choice: megabanks or credit unions. In between are smaller, local banks, often referred to as community banks, and online-only banks, both of which are known for being more consumer-friendly for average customers than large banks.
Nor do you need to consolidate all your banking with a single financial institution. You might decide to optimize by cherry-picking the best services across banking types.
“This is not an all-or-nothing proposition,” McBride said. “You may decide to have your checking account at a credit union but your savings account with an online bank. You can link the two and move money back and forth with a couple clicks of a mouse.”
Within the industry, banks are feuding with credit unions. Banks claim it’s unfair for large, full-service credit unions to be tax-exempt and face fewer regulations when they compete head-to-head with tax-paying banks.
The merit of that argument aside, you can choose to ignore it when shopping for the best banking services for yourself. Or, if the tax-exempt issue strikes you as important, make it a factor in your decision — maybe you take your business to a community bank.
Here are 10 things to know about credit unions.
They are poorly named. Contrary to some perceptions of the name, credit unions have nothing to do with credit reports and scores and are not affiliated with a labor union. “We’ve historically struggled with the nomenclature,” said Mike Schenk, vice president of economics and statistics at Credit Union National Association.
Joining is easier than you think. One drawback of credit unions is you have to qualify to join. But it’s far simpler to qualify than a generation ago, and you probably could qualify for more than one, maybe based only on where you live. Search http://www.asmarterchoice.org/, culookup.com and ncua.gov. It’s worth checking all three.
As credit unions are fond of saying, “anybody can join a credit union; just not the same one.”
Joining typically means opening an account, with some requiring deposits as little as $5. Overall, though, finding the best credit union could involve more upfront work and hassle than opening an account at a familiar-name bank.
Service and satisfaction is superior. Credit unions typically rank at or near the top of the annual American Customer Satisfaction Index, easily defeating banks year after year. Last year was no different with credit unions scoring an 85 on the index, second-best across all industries, not just financial services. Banks rated a 76.
“The structure of credit unions means they can charge lower and fewer fees, but they still manage to provide superior service in nearly every area, from tellers to websites,” Claes Fornell, ACSI chairman, said in announcing the latest results.
However, if you have a lot of money to deposit and use a wide variety of services, especially business services, you might find lucrative offerings and great service at traditional banks, McBride said.
Fees are more palatable. Fees are fewer and lower at credit unions. “I think consumers have fee fatigue and are increasingly turning to credit unions as an option,” McBride said.
Bankrate has found you’re much more likely to find a free checking account at a credit union, without strings attached, such as a minimum balance requirement. Or, at least, requirements that are easy to meet, such as having a paycheck direct-deposited or receiving electronic bank statements instead of paper ones.
Specifically, 72 percent of the nation’s biggest credit unions offer free checking accounts, compared with 38 percent of the nation’s largest banks, Bankrate found. And when credit union customers do get hit with a fee, it’s generally lower than banks charge. For example, the average overdraft fee at credit unions, is $26.78, compared with $32.74 at banks.
ATMs might be plentiful. ATM availability used to be a major plus for large banks and a negative for credit unions. But most credit unions belong to large ATM alliances that allow you to use teller machines for free at far more places, some rivaling megabank networks. Some also reimburse you when you get docked an ATM fee.
“That’s not the hurdle consumers might expect it to be,” McBride said.
Branches might be available too. Similar to the ATM problem, megabanks have a tremendous advantage for those who prefer to visit a bank branch in person. Credit unions diminished that advantage in a similar way, sharing credit union branches, allowing members to use branches of different credit unions.
Loan rates are probably lower. Perhaps the single-best reason to join a credit union is for lower loan rates, especially for auto loans.
Financing a $25,000 new car for five years would cost $800 less in interest with a credit union loan compared with a bank loan, on average, Schenk said.
Home equity loans are somewhat lower than banks, less than 1 percentage point difference on average, while mortgage rates are only slightly lower, on average.
Saving rates are higher. Savings rates stink everywhere, so that’s not a huge incentive to switch. But you’ll get marginally better rates at credit unions, on average. A regular savings account earns 0.14 percent at credit unions, compared with 0.08 at banks, according to rates compiled at CUlookup.com.
Credit card rates are more favorable. If you carry a balance on a credit card, which for the record is a bad idea, credit union finance charges are lower. For a rewards card, the average interest rate is 9.9 percent, compared with 12.2 percent for banks. A regular credit card is about 1 percentage point lower, on average.
Technology is competitive. High-tech features are yet another traditional advantage of big banks that has eroded. Megabanks are still the innovators for many high-tech features, but many credit unions have mobile apps with mobile deposit — taking a smartphone picture of the check you’re depositing. Many credit unions have person-to-person payments, online bill paying and other features.
“They have a lot of the same bells and whistles you’ve become accustomed to at banks,” McBride said. “There’s just not that much of a gap.”
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