As rising fees continue to fuel misgivings about banks, consumers are turning to an alternative: credit unions. According to statistics from the Credit Union National Association, or CUNA, 3.7 million people joined one of these not-for-profit institutions in 2015 to reach a record high of total members.
With more than 6,000 credit unions in the country, these institutions vary in size and services, according to the National Credit Union Administration, the independent federal regulator. While there are plenty of perks to joining a credit union, there are some downsides, too. Consider the pros and cons of these 5 key offerings of credit unions before you become a member.
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Not-for-profit status fosters members-first mentality
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Pro: Credit unions have superior service.
“Credit unions are cooperatives owned by their members,” says Pat Keefe, a spokesman for CUNA. “Their mission is to provide their members with affordable financial services — not to gouge them as profit centers.”
That mission leads to very satisfied members, too. In the American Customer Satisfaction Index 2015 survey from CFI Group, credit unions beat banks, with customers rating their overall satisfaction at a score of 87 out of 100, 8 points greater than the banking average.
Con: There’s limited eligibility.
Becoming a member has its hurdles.
Unlike banks, consumers cannot open an account at any credit union they choose. Many credit unions cater to specific geographic areas, employee groups, associations or religious or fraternal affiliations.
However, Greg McBride, CFA, Bankrate’s senior financial analyst, says joining a credit union has gotten much easier.
“Credit union fields of membership have been expanded in recent years,” McBride says. “Increasingly, it’s no longer a requirement to be an employee of 1 specific company, but there may be dozens that are eligible through the same credit union.”
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Find better credit card rates
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Pro: Credit unions offer lower interest rates.
McBride says credit unions traditionally pass on the savings from their not-for-profit status through their entire product line, offering customers higher rates on savings accounts and lower rates on loans and credit cards.
“If you have a balance on your credit card and you’re looking to transfer for a lower interest rate, credit unions offer very competitive rates,” McBride says.
For consumers who pay off their balances in full each month, McBride recommends expanding the search for a credit card rewards program with a bigger payout.
“It’s an increasingly competitive rewards landscape that benefits responsible consumers,” McBride says.
Banks appear to have cornered the rewards market.
“The credit card market continues to be dominated by large national bank issuers that often have generous reward programs and sign-up bonuses,” McBride says.
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Dodge minimum balance rules
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Pro: Accounts have fewer strings attached.
While many account holders at banks have been forced to adjust to higher minimum balance requirements, 76% of the institutions surveyed in the 2016 Bankrate Credit Union Checking Survey had no minimum balance requirements to avoid fees.
Con: Accounts may have fewer bells and whistles.
Richard Hunt, president and CEO of Consumer Bankers Association, says larger banks have greater resources at their disposal than credit unions. These resources give big banks the ability to make investments in emerging technologies sooner than credit unions can, although the gap is narrowing. Depending on the size of the institution, that may mean the big bank down the street offers a more muscular online banking site or more refined mobile payments options.
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Lower fees are still rising
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Pro: Fees are lower than at most banks.
McBride says many credit unions have some flexibility in how much they charge, and many of them aim to keep costs low for their members. For example, McBride says credit unions may eliminate products or services to cut costs rather than add fees.
That flexibility adds up to some big savings. The 2015 CUNA Membership Benefits Report estimates that credit union members across the country saved nearly $8.5 billion during the 12 months ending in September 2015 by doing business at a credit union instead of a bank.
Con: Those fees are rising.
While fees may be lower, that doesn’t mean they will always be inexpensive.
“Credit unions are not immune from some of the same regulatory pressures that have led banks to eliminate free checking and raise fees,” McBride says.
In a year-over-year comparison, the average nonsufficient funds fee grew from $26.78 in 2015 to $26.96, according to Bankrate’s 2016 Credit Union Checking Survey.
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Pro: Credit unions have shared ATMs and branches.
While big banks advertise the convenience of the ATM or branch around the corner, some credit unions have joined forces to offer their members the same easy cash access with the CO-OP ATM network and a shared branch alliance.
“Credit unions have made large strides in an effort to level the playing field in terms of ATM access,” McBride says.
The CO-OP ATM network includes almost 30,000 surcharge-free cash machines, and shared branching gives members the ability to conduct in-person transactions at more than 5,000 branches around the country.
Con: Not all credit unions are created equal.
While sharing branches and ATMs helps many members, joining a credit union does not guarantee you’ll enjoy access to the network. Of the nation’s 50 largest credit unions, 35 belong to the CO-OP network, Bankrate’s credit union survey found.
While many of the remaining credit unions belong to other networks, 3 have no network affiliate at all.