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Deposit insurance increases at credit unions

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Better service, lower rates
Credit unions have historically emphasized personal service and lower rates as a major component of their mission. Recently the industry has experienced an uptick in the number of people applying for membership.

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"We can't say whether it's the (financial) environment or the fact that we've got some very attractive specials going on right now, but we are seeing more people moving their money from where they feel are riskier places," says Kathy Zierers, vice president of savings products at Navy Federal Credit Union, the nation's largest.

Credit unions can offer their members a better deal because any extra profits are returned to members in the form of dividends or lower fees after operating expenses and capital reserves are accounted for.

In addition, these institutions offer favorable rates relative to competitors. The average interest rate for a standard fixed-rate credit card issued by a credit union was 11.75 percent, versus 13.17 percent for a bank-issued card, according to a June 2008 NCUA survey.

Credit union facts and figures
The concept originated in Europe during the 1850s as a way to provide credit to poor farmers after crop failure and famine destroyed their livelihoods.
The first credit union cooperative was known as the "people's bank."
The first credit union in the U.S. was chartered in Manchester, N.H., in 1909 to protect workers from predatory lenders.
Credit unions can be either federally chartered or state chartered. All federally chartered and most state-chartered credit unions are insured through the NCUSIF.
There are more than 8,600 federally chartered credit unions serving some 85 million members with more than $600 billion in deposits.
Some 3,179 state-chartered credit unions represent 39 percent of all credit unions in the United States.

Less risk to consumers
Because there are no stockholders to answer to, there is less pressure on credit unions to get involved in such risky investments as mortgage-backed securities.

"You won't find those types of investments in the credit union industry. Therefore our earnings are not being impaired by them," says Phil Greer, senior vice president of loan administration at State Employees' Credit Union in Raleigh, N.C.

"This is what many financial institutions did on Wall Street so they could increase the return to their stockholders," he says. "That's not what we're all about."

Becker says that although no one is immune from the current crisis, credit unions are safer bets because they are essentially restricted to investing in federally backed securities that are generally considered safer.

"Credit union delinquencies, charge-offs and bankruptcies have increased, but they haven't increased to the extent to which bank charge offs, delinquencies and bankruptcies have increased," says Becker.

Do's and don'ts

  • Do look for a credit union that insures deposits.
  • Do look for credit unions that offer a good number of online services.
  • Do shop for credit unions with the best rates, especially if you're eligible for more than one.
  • Don't join a credit union, especially smaller ones, if you expect an army of customer service agents to be available 24/7.
  • Don't apply to a credit union if you don't fit the field of membership.
Bankrate.com's corrections policy -- Posted: Oct. 14, 2008
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